A circular-flow diagram is a model that
A)helps to explain how participants in the economy interact with one another.
B)helps to explain how the economy is organized.
C)incorporates all aspects of the real economy.
D)Both (a)and (b)are correct.

Question

Quizplus · Accepted Answer

A circular-flow diagram is a model that explains how participants in the economy interact with one another and how the economy is organized. It shows how households and firms interact in the market for goods and services, as well as in the market for factors of production (i.e. resources such as land, labor, and capital). Thus, the diagram incorporates all aspects of the real economy.

A Circular-Flow Diagram Is a Model That