Question

Which of the following best characterizes the circular flow of income?

1. Businesses buy resources from the government, and households buy goods and services from businesses.
2. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.
3. The government purchases resources from businesses and households and then sells goods and services to businesses and households.
4. Households buy factors of production from businesses, and businesses buy goods and services from households.

Answer 1

B. Businesses purchase resources from households.

Answer 2

2. Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

Step-by-step explanation:

The circular flow of income shows the flow of money and resocurces within an economy.

The household owns means of production and businesses buy them from households. Households earn income. The income earned is then used to purchase goods and services from the business.

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