The major lesson of the circular flow diagram is that
A) saving must always be less than investment.
B) taxes must always be greater than government expenditures.
C) total income in the economy must always equal total spending.
D) tax receipts must be equal to transfer payments.

Question

Quizplus · Accepted Answer

The circular flow diagram illustrates the flow of goods and services and money between households and firms. It shows that the total income in the economy must always equal total spending because every transaction involves both a buyer and a seller, so income and spending are two sides of the same coin. Therefore, choice C is the correct answer.

The Major Lesson of the Circular Flow Diagram Is That