Final answer:
The student's question relates to how households in an economy use their income. The correct answer is that households divide their income among spending, taxes, and saving.
Step-by-step explanation:
C. Households divide their income among spending, taxes, and saving.
Households in an economy make decisions on how to allocate their income based on their needs and priorities. They typically do not buy all goods and services produced in the economy, nor do they spend all of their income. Within the circular flow of the economy, households earn income by providing labor and other resources to firms. They then decide on the allocation of this income for various purposes: they spend on goods and services, pay taxes to the government, and save a portion of what they earn. This behavior affects the overall economy, as the money they spend becomes revenue for firms, and the money they save can be invested, which in turn can lead to economic growth.
In the actual economy, households divide their income among spending, taxes, and saving. Therefore, option C - 'divide their income among spending, taxes, and saving' is correct.