The circular flow of income shows
A) the dollar value of output is less than the total income.
B) the dollar value of output is more than the total income because of the existence of profits.
C) the dollar value of output is exactly equal to the total income.
D) the dollar value of output is more or less than the total income, depending on whether profits are positive or negative.

Question

Quizplus · Accepted Answer

The circular flow of income shows that the dollar value of output is exactly equal to the total income. This means that every dollar spent on output (goods and services) generates an equal amount of income for someone in the economy, whether it be through wages, salaries, rent, or profits. Therefore, in a closed economy, the total income must equal the total expenditure on output.

The Circular Flow of Income Shows