Question

In the circular flow model, households provide to firms. This is represented by the letter A.

Answer 1

Households would provide factors of production to firms.

• The circular flow demonstrates the movement of money in the economy.
• The two-sector model of circular flow comprises households and firms.
• Money first flows from producers to households in return for production services in the form of wages.  
• Finally, return to producers back in the form of payment for the purchase or expenditure made by households.

What do you mean by circular flow of money?

• The circular flow model demonstrates how money moves through society.
• Money flows from producers to workers as wages and flows back to producers as payment for products.
• In short, an economy is an endless circular flow of money.

What are the two types of circular flow?

There are two types of circular flow:

• Real flow: The term real flow means the flow of factor services from households to firms.
• Similarly, the flow of goods and services from firms to households.
• Money flow: The money flow refers to the flow of factor payments from firms to households for factor services.

Learn more about the circular flow of money here:

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