Question

A circular flow model shows how:

A. All interactions occur in a traditional economy.
B. All interactions occur in a market economy.
C. Some interactions occur in a traditional economy.
D. Some interactions occur in a market economy.

Answer 1

The circular flow model represents interactions between households and firms within the goods and services market and the labor market, demonstrating all interactions in a market economy.

Step-by-step explanation:

The circular flow model is a diagram used in economics to show how the economy functions with interactions between households and firms within two primary markets: the goods and services market and the labor market. In this model, firms sell goods and services to households, while households provide labor to firms. The model generally depicts the flow of money and resources in a market economy.

Given the four options presented in the question, the correct answer is that a circular flow model shows how:

• B. All interactions occur in a market economy.