Answer:
The correct answer is option b.
Explanation:
The simplest circular flow model includes only two sectors of the economy.
- Business
- Households
The resources flow between these two sectors. Households possess factors of production such as land, labor, capital and, human capital. Businesses hire these factors of production to produce goods and services and pay factor payments in return. These factor payments are rent, wages, interest, and profit.
The businesses use these factor inputs and produce goods and services which are purchased by the households. The households pay consumption expenditure in return.
