In the circular-flow diagram, the value of household income-the sum of wages, dividends, interest, rental income, and transfer payments-equals the sum of:
A)household tax payments.
B)consumer spending, private saving, and household tax payments.
C)the money supply.
D)transfer payments and household tax payments.

Question

Quizplus · Accepted Answer

Household income is either spent on consumption or saved by the household. Therefore, the sum of consumer spending and private saving must equal the total household income. Additionally, households also make tax payments to the government, which further adds to the sum equaling the total household income. Transfer payments and the money supply are not directly related to household income in the circular flow diagram.

In the Circular-Flow Diagram, the Value of Household Income-The Sum