According to the circular flow of income and expenditure through the economy,which of the following is FALSE?
A) Sum of incomes = sum of expenditures.
B) Sum of incomes = sum of value added.
C) Sum of expenditures = sum of value added.
D) Sum of incomes = sum of expenditures = sum of value added.
E) Sum of value added = sum of savings.

Question

Quizplus · Accepted Answer

The circular flow of income and expenditure shows the flow of money in an economy between households, firms, and the government. It states that the sum of incomes earned by households is equal to the sum of expenditures made by households, firms, and the government. Similarly, the sum of incomes is equal to the sum of value added by all firms in the economy. Also, the sum of expenditures is equal to the sum of value added by all firms in the economy. Therefore, options A, B, C, and D are true statements. However, the sum of value added is not equal to the sum of savings, and hence option E is false. Savings are a part of the income that is not spent on consumption and can be either saved or invested.

According to the Circular Flow of Income and Expenditure Through