Question: In the circular flow model, which of the following labels belongs in box A? A)Spending B)Income C)Goods and services D)Labor and capital
Answer: D) Labor and capital [See attached image] box A (green)
Explanation:
The circular flow model is a model used to explain the economy.
In this simple economy diagram, individuals (households) invest their capital in firms and provide the labor that enables firms to produce goods and services. These activities are represented by line A (green) in the diagram.
On the other hand, firms provide income to households in exchange for their work and profit sharing as compensation for their capital. These activities are represented by line C (blue) in the diagram.
The circular flow considers that the following economic markets exist:
Market of factors of production, involving capital and labor.
Households supply A (green) and firms demand C (blue)
Market of goods, which are tangible, and services, which are intangible.
Households demand D (azul) and firms supply B (verde)
The circular flow considers that the following monetary flows exist:
Firms provide households with income C (blue) in exchange for their labor and capital A (green).
Households, in return, spend D (azul) on the goods and services that firms produce B (green).
[See attached image]
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