For any individual period the firm cashflows are a circular flow of funds, this means
A) the cashflows are always invested in fixed assets
B) that cashflows are always in a spiral away from the firm
C) that firm cashflows must be borrowed externally to be reinvested in the economy
D) that all cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders.

Question

Quizplus · Accepted Answer

The circular flow of funds means that all the cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders. This is because the cashflows received from customers are used to pay for operating expenses, interest payments, and dividends to shareholders. Any excess cashflow can be reinvested in the business or used to pay down debt. Therefore, the answer is D, which states that all cashflows generated by the firm must equal the cashflows paid to the creditors and shareholders.

For Any Individual Period the Firm Cashflows Are a Circular