The simple circular flow model shows that:
A) firms hire the factors from households and produce the output consumed by households.
B) households provide the factors to firms and buy the output produced by firms.
C) the source of household income is the producing sector and the source of firms' revenue is household spending.
D) all of the above are correct.

Question

Quizplus · Accepted Answer

The simple circular flow model illustrates the economic interactions between households and firms, where households provide factors of production to firms and in return receive income, which they use to purchase goods and services produced by firms. This model captures the continuous flow of money and resources between these two sectors, making all the statements correct in describing aspects of this economic model.

The Simple Circular Flow Model Shows That