Question

In the circular flow diagram, selling factors of production gives households income that they use to purchase goods and services.

a. True
b. False

Answer 1

The statement that selling factors of production gives households income to purchase goods and services in the circular flow diagram is true; it illustrates the basic economic exchanges between households and firms.

Step-by-step explanation:

In the circular flow diagram, the assertion that selling factors of production gives households income that they use to purchase goods and services is true. The diagram simplifies complex economic interactions into a visual model that shows two primary relationships: the product market and the labor market.

Households sell their labor and other factors of production to firms in exchange for income in the form of wages, salaries, and benefits. This income is then used to purchase goods and services from firms, completing the circular flow of money and resources in an economy.