In the simple circular flow model
A) households spend the income they receive from labor services but save the income they receive from selling the other factors of production.
B) businesses buy labor services from households, but supply other factors of production themselves.
C) households spend their entire income on consumer products.
D) profits are a type of income that is not received by households.

Question

Quizplus · Accepted Answer

In the simple circular flow model, households spend their entire income on consumer products, reflecting the assumption that all income earned by households (from providing labor and other resources) is used to purchase goods and services from businesses. This model simplifies the economic interactions between households and businesses, ignoring savings, investments, and other complexities.

In the Simple Circular Flow Model