Question

In the circular flow model, money flows from:

Select one:

a. the government to firms for goods and services.

b. the government to households for taxes.

c. firms to foreign economies for exports.

d. foreign economies to households for exports.

Answer 1

Option A.

• A circular flow diagram shows the interactions of firms, households and the government within an economy and how various transactions occur between them.
• That is, it shows how various transfers of goods and services, money, payments, expenditures etc occurs between them.
• In a circular flow diagram, the government spends the revenue it receives on the purchase of various goods and services from the firms.
• In return they pay the firms for those purchases in the form of money.
• Hence we can say that money flows from the government to firm's for goods and services.