The circular flow of income shows that GDP can be measured as the sum of wages,interest,rent,and profits received by households or total expenditures on goods and services by households,firms,government,and the rest of the world.

Question

Quizplus · Accepted Answer

The circular flow of income model illustrates the flow of goods and services and factors of production between households and firms. It shows that households receive income in the form of wages, interest, rent, and profits from firms, and in turn, they spend their income on goods and services produced by these firms. This cycle leads to the measurement of GDP either as the sum of all incomes generated in the economy or the total expenditures on final goods and services. Therefore, the statement is true.

The Circular Flow of Income Shows That GDP Can Be