Question

What does the inner circle represent in the circular flow model?

1) Households
2) Firms
3) Government
4) Financial Institutions

Answer 1

The answer is Household and firms

Answer 2

The inner circle of the circular flow model represents the labor market, where households supply labor and firms demand it.

So, the correct answer is 1 and 2.

Step-by-step explanation:

The circular flow model is an economical diagram that outlines the interactions between two primary groups in the economy: households and firms. It includes two types of markets: the goods and services market and the labor market. The inner circle of the circular flow model represents the labor market where households supply labor and firms demand it. In this model, households sell their labor to firms in return for wages, salaries, and benefits, indicating that the inner circle stands for the labor side of the economic transactions.

So, the correct answer is 1 and 2.