The circular flow diagram implies that if accounting is done correctly,the market value of ________ the market value of ________.
A) production must exceed; expenditure
B) income must exceed; production
C) expenditure must equal; income
D) expenditure must exceed; income

Question

Quizplus · Accepted Answer

The circular flow diagram shows the flow of goods and services and the flow of money in the economy. In a closed economy, where there is no international trade, the market value of goods and services produced (production) must be equal to the sum of all expenditures (consumption, investment, and government spending) and income (wages, profits, and rent). This is because every dollar spent on goods and services becomes someone else's income. Therefore, the correct answer is C: expenditure must equal income.

The Circular Flow Diagram Implies That If Accounting Is Done