Households (you and your parents) would do which of the following actions according the Circular Flow...

Households (you and your parents) would do which of the following actions according the Circular Flow diagram?

1. Sell and Buy (or Rent).

2. Does not sell nor buys.

3. Buys, but does not sell.

4. Sell, but does not buy.

Expert Solution

In this simplified economy, there is only one way in which the households may dispose off their earnings- by spending their entire income on the goods and services produced by the domestic firms. As there is no government, people don't have to pay taxes; and neither do they buy imported goods since there is no external trade in this simple economy. In other words, factors of production use their remunerations to buy the goods and services which they assisted in producing and houseld use their income to just buy the products not to sell them as selling is done by firms .

Hence (C) part is a correct answer

Rahul Sunny answered 2 years ago

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