Circular Flow Diagram in Economics

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Firms and households trade currencies directly in the circular flow model.
Households receive payments for goods and services, while firms receive wages for labor. (correct)
Firms pay households for financial investments and receive products in return.
Households give money to firms without receiving anything in return.

<p>By producing goods and services for households (A)</p> Signup and view all the answers

<p>To showcase the interactions between households and firms (A)</p> Signup and view all the answers

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The two primary sectors in the circular flow diagram are households and firms.
Households provide factors of production (labor, land, capital, and entrepreneurship) to firms.
Money flows from households to firms in exchange for goods and services purchased in the product market, and money flows from firms to households in exchange for factors of production in the factor market.
Firms contribute to the economic flow by producing goods and services that are sold to households in the product market.
The primary purpose of the circular flow diagram is to illustrate the interdependent relationship between households and firms in an economy.