Which statement is false about the circular-flow diagram? A. Money flows in the direction opposite to goods and services and factors of production. B. Money flows from households to firms as households offer factors of production for sale. C. Firms are the primary suppliers of goods and services. D. Households are the primary demanders of goods and services.

Question

Business

Nickolas

22 February, 00:57

Which statement is false about the circular-flow diagram? A. Money flows in the direction opposite to goods and services and factors of production. B. Money flows from households to firms as households offer factors of production for sale. C. Firms are the primary suppliers of goods and services. D. Households are the primary demanders of goods and services.

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Answers (1)

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Davis Blair · Answer 1

B. Money flows from households to firms as households offer factors of production for sale

Explanation:

The circular-flow diagram (or circular-flow model) is a graphical representation of the flows of goods and money between two distinct parts of the economy:

i) market for goods and services, where households purchase goods and services from firms in exchange for money;

ii) market for factors of production (such as labor or capital), where firms purchase factors of production from households in exchange for money.

Based on this definition, we can see that money doesn't flow from household to firms as households offers factor of production for sale but the other way round meaning firms are the one that offer money in purchase of factors of production from household.