The two loops in the circular-flow diagram represent
A)the flow of goods and the flow of services.
B)the flow of dollars and the flow of financial assets.
C)the flow of inputs into production processes and the flow of outputs from production processes.
D)the flows of inputs and outputs and the flow of dollars.

Question

Quizplus · Accepted Answer

The loops in the circular-flow diagram represent the flows of inputs and outputs (goods and services) between households and firms, as well as the flow of dollars (income and spending) between these two groups. Option A is too narrow in its focus on only goods and services, while option B is too specific in its mention of financial assets. Option C is also too narrow, as it only considers the production process and ignores the broader interactions between households and firms.

The Two Loops in the Circular-Flow Diagram Represent