A circular flow diagram of an economy shows that
A) individuals tend to be highly specialized.
B) households earn wages and salaries for their labour supplied to the firms.
C) households buy goods and services from firms.
D) firms use the labour they hire to produce goods and services.
E) All of thesE.

Question

Quizplus · Accepted Answer

A circular flow diagram of an economy illustrates the flow of goods, services, and money between households and firms. The diagram shows that households provide labor to firms, which pay wages and salaries to the households. In turn, households use this income to purchase goods and services from firms. The circular flow diagram also shows that firms use the labor they hire to produce goods and services, which are then sold to households. Thus, all of the given options are correct and illustrated in a circular flow diagram of an economy.

A Circular Flow Diagram of an Economy Shows That