Final answer:
The circular flow of income demonstrates that the dollar value of output is exactly equal to total income in the economy, representing a balanced exchange of labor, goods, and services between households and firms.
Step-by-step explanation:
The circular flow of income is a fundamental concept in macroeconomics that illustrates how money moves through an economy. According to this model, there is a continuous, reciprocal flow of goods, services, and funds between households and firms.
Households provide labor to firms, and in return, they receive wages, salaries, and benefits. Conversely, firms provide goods and services to households in exchange for revenue. This interdependence creates a balance where the dollar value of output is exactly equal to total income.
So, when considering the options presented in the question, the correct answer is that the dollar value of output is exactly equal to the total income (option d).
This equality holds because all spending on goods and services by households translates into income for the firms, and subsequently, wages for their employees and payments to other resource suppliers including capital and land.