The basis of the circular-flow diagram is that:
A)the best models avoid making assumptions.
B)goods and services flow in a circle in the factor market.
C)resources are sold along with goods and services in the resource market.
D)the flow of money into each market or sector is equal to the flow of money coming out of that market or sector.

Question

Quizplus · Accepted Answer

The circular-flow diagram shows the flow of goods, services, and money between households and firms. The flow of money into each market (transactions in which households buy goods and services from firms) must be equal to the flow of money coming out of that market (transactions in which firms pay households for their labor and other resources). Therefore, answer choice D is correct. Answer choices A, B, and C are incorrect as they do not accurately describe the basis of the circular-flow diagram.

The Basis of the Circular-Flow Diagram Is That