Statement I.The circular flow model oversimplifies the exchanges in our economy.
Statement II.Most of the money received by households in the form of wages,rent,interest,and profits flows back to business firms in the form of consumer expenditures.

Question

Quizplus · Accepted Answer

Statement I is true as the circular flow model does not take into account external factors such as government intervention, trade with other countries, and the role of financial institutions. However, Statement II is also true as most of the money earned by households is spent on goods and services produced by businesses, which then allows the businesses to earn a profit and continue providing employment opportunities. Therefore, both statements are true.