In a simple circular flow diagram, total spending on goods and services in the product market
A) is greater than the total income earned in the resource market.
B) is less than the total income earned in the resource market.
C) is done by the government.
D) equals the total income earned in the resource market.

Question

Quizplus · Accepted Answer

In a simple circular flow diagram, total spending on goods and services in the product market must equal the total income earned in the resource market. This is a basic principle of the circular flow model, which illustrates the flow of goods, services, and money between households and firms. The total spending on goods and services represents the aggregate demand for output, while the total income earned in the resource market represents the aggregate supply of resources, such as labor, capital, and land. Therefore, in equilibrium, the total spending must equal the total income.

In a Simple Circular Flow Diagram, Total Spending on Goods