Question

Question 1
Which statement is true about the circular flow diagram of an economy
The market for goods and services connects household spending to government spending
The market for factors of production connects household spending to goods produced by firms,
The matet for factors of production connects spending by firms to household income
The mattet for goods and services connects labor income to firms as employers
The made for goods and services connects labor income to household spending

Answer 1

Answer:

The correct answer is - The market for factors of production connects household spending to goods produced by firms.

Explanation:

The circular flow diagram of economy identifies two distinct parts of economy:

• Market for products and services where money flows from workers, in the form of salary, back to firms, as a form of goods and services.
• Market for factors of production, where firms purchase means for production, such as labor or capital from households in exchange for money.

Answer 2

The statement that is true about the circular flow diagram of an economy is: "The market for factors of production connects spending by firms to household income."

• This is because Households are considered to be the demanders in the product market, while they turned to suppliers in the factor market.

• Also, note that the circular flow diagram is designed to reveal how money circulates within an economy by breaking households and businesses into factors and products markets.

Hence, in this case, the correct answer is option C "The market for factors of production connects spending by firms to household income."

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