The simple circular flow model shows that A. total income received by households is less than the total value of goods and services produced because of leakages. B. total income received by households must be equal to the dollar value of all goods and services produced. C. total income received by households is different from the dollar value of all goods and services produced because the units of measurement are not the same. D. total income received by households is less than total payments to business because there are business profits.

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Business

Precious Riddle

31 July, 04:59

The simple circular flow model shows that A. total income received by households is less than the total value of goods and services produced because of leakages. B. total income received by households must be equal to the dollar value of all goods and services produced. C. total income received by households is different from the dollar value of all goods and services produced because the units of measurement are not the same. D. total income received by households is less than total payments to business because there are business profits.

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Alison Meyer · Answer 1

The answer is B.

Explanation:

The simple circular flow model is also known as two-sector circular flow of income model and the the two sectors are firms and households. There is no government sector or foreign sector.

It assumes that households spend all their income on goods and services produced by firms while the firms spend their income on factors of production (labor, land etc.) which are owned by households.

Therefore, total income received by households will be equal to the dollar value of all goods and services produced.