In a simple circular-flow diagram, how are total income and total expenditure related?

Question

Quizplus · Accepted Answer

In a simple circular-flow diagram, every transaction involves a buyer and a seller, which means that total income earned by sellers must be equal to total expenditure incurred by buyers. Therefore, option C ("They are always equal because every transaction has a buyer and a seller") is the correct answer. Although it is possible for income and expenditure to differ in real-world economies due to factors such as savings, investment, and government intervention, the circular flow model assumes that income and expenditure are always in balance.

In a Simple Circular-Flow Diagram, How Are Total Income and Total