The circular flow concept of a closed economy helps to explain why:

Question

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The circular flow concept shows that all the money earned by households (in the form of wages, rent, interest, and profit) is spent on consuming goods and services produced by firms. This spending by households becomes the revenue for firms, which they use to pay for factors of production (such as labor, capital, and materials). As a result, GDP, GNI, and GNE (which are all measures of income) are equal in a closed economy.

The Circular Flow Concept of a Closed Economy Helps to Explain