The simple circular flow of income shows that the total income in an economy equals
A) total profits earned by firms.
B) all taxes paid by households.
C) the total amount of money supplied by the government.
D) total expenditures.

Question

Quizplus · Accepted Answer

The simple circular flow of income model shows that the total income in an economy equals total expenditures. This includes the expenditures of households on consumption goods and services and the expenditures of firms on factors of production, such as labor and capital. Therefore, the correct answer is option D. Options A, B, and C are incorrect as they do not reflect the total income in an economy.

The Simple Circular Flow of Income Shows That the Total