The circular flow shows us that

Question

Quizplus · Accepted Answer

The circular flow model illustrates the interdependence of households and firms in the economy. Households supply labor and other factors of production to firms, who in turn produce goods and services that are sold back to households. This mutually beneficial exchange demonstrates the importance of both households and firms in the economy. Answer B is incorrect because households also make important decisions such as what to consume and how much to save. Answer C is incorrect because households play a significant role in the economy beyond consumption, such as providing labor and capital for production. Answer D is incorrect because firms are not the ultimate consumers, as they produce goods and services for households to consume.

The Circular Flow Shows Us That