Question

The ________ shows the interaction between household and firms in the goods and services market as well as in the labor market. This simplifies a complex economy, enabling economists to better observe and understand behavior.

Answer 1

circular flow diagram

Step-by-step explanation:

The circular flow diagram is a simplified graphical representation of an economy - detailing the various interactions (inputs and outputs) between households and firms in both markets (goods and services; and labor). The arrows indicate the economic flow and show how households and firms are interdependent.