If some income earned by households is not spent on output,or if some income earned by firms is not spent on factor services,the circular flow of income will
A)stop.
B)run over.
C)expand.
D)contract.
E)explode.

Question

Quizplus · Accepted Answer

The circular flow of income relies on the constant exchange of payments for goods and services between households and firms. If some income is not spent on output or factor services, this disrupts the flow and may lead to a contraction in economic activity. This is because firms will have less income to pay for factors of production, which means they may have to reduce production and lay off workers, leading to a reduction in household income and spending.

If Some Income Earned by Households Is Not Spent on Output,or