According to the circular flow, the value of total output produced and total income
A) should differ by the value of intermediate goods.
B) should increase by the unanticipated rate of inflation.
C) will always be increasing in a capitalist economy.
D) will be equal.

Question

Quizplus · Accepted Answer

According to the circular flow model, total output produced and total income should be equal. This is because every dollar spent on goods and services (total output) by households is a dollar of income earned by firms, and every dollar spent on factors of production (wages, rent, and profits) by firms is a dollar of income earned by households. Therefore, the value of total output produced and total income will be equal in a closed economy.

According to the Circular Flow, the Value of Total Output