Question

In the circular flow model, rent, wages, interest, and profit paid flow from ________ through ________ to ________; households receive transfers from ________, and firms receive transfers from ________..

Answer 1

Rent, wages, interest, and profit paid flow from FIRMS through FACTOR PAYMENTS to HOUSEHOLDS ; households receive transfers from FIRMS, firms from HOUSEHOLDS

Step-by-step explanation:

Circular flow of income is flow of real product (factors of production, goods & services) ; flow of money (factor incomes- rent, wage, interest, profit & prices for goods & services) - between firms & households . [Assuming closed, unintervened economy without financial sector ∴ no injections & leakages]

Households provide firms with factors of production - land, labour, capital, entrepreneur 7 firms provide them factor incomes - rent, wages, interest, profit.

Households spend these factor incomes earned to purchase goods & services produced by firms, for which they pay them prices in return.

This way : All Production = All Consumption = All Income keeps on 'circulating' within the economy's two sectors.