Answer to Question #161275 in Microeconomics for Divyam Kumar Singh

Question

Draw the circular flow diagram by showing two sector and two market.show the flow of goods and services, factors of production and financial services in it.

Answer 1

The circular flow diagram illustrates the equivalence of the income approach and expenditures approach to calculating national income. In this diagram, goods, services, and resources move clockwise, and money (income from the sale of the goods, services, and resources) moves counterclockwise.

Individuals purchase goods and services from businesses, and their expenditures (the money they spend) go to businesses. Firms purchases resources, such as labor from households, and the money they pay for these resources go to households.