Which of the following are the two key groups of participants in the circular fl

Question

Which of the following are the two key groups of participants in the circular flow of income? yA, households and firms OB. ° C. government and financial institutions 0 D. domestic residents and foreign residents In a simple circular-flow model, there are flows of savers and borrowers and flows of 0 A. funds received from the sale of factors of production; spending on final goods and services 0 B. factors of production: goods and services C. 0 D. Both (a) and (b) are correct. None of the above; there are no flows in the circular flow of income.

Explanation / Answer

1-a  The factor owners spend this income on goods which leads to a circular flow of income. This basic circular flow of income model consists of six assumptions: The economy consists of two sectors: households and firms. Households spend all of their income (Y) on goods and services or consumption (C).

2-c

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