Question

which statement is true about the circular flow diagram of an economy?

a. The market for goods and services connects household spending to government spending.
b. The market for factors of production connects household spending to goods produced by firms.
c. The market for factors of production connects spending by firms to household income.
d. The market for goods and services connects labor income to firms as employers.
e. The market for goods and services connects labor income to household spending.

Answer 1

Regarding the circular flow diagram of an economy, the market for factors of production links business spending to household income.

In economy, circular flow is a model in which the major exchanges are economy represented as  goods and services, flow of money,  etc. between economic agents household income.

The term household income generally refers to the combined gross income of all members of a household income above a specified age. Household income includes every member of a family who lives under the same roof, including spouses and their dependents. The incomes of everyone count even if they aren't all used to support the household. Household income also includes anyone living in that home even if they're not related. Household income is an important risk measure used by lenders for underwriting loans and economy is a useful economic indicator of an area's standard of living.

Learn more about household income here

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