Question

Question 1

Answer 1

Answer:

The correct answer is - The market for factors of production connects household spending to goods produced by firms.

Explanation:

The circular flow diagram of economy identifies two distinct parts of economy:

• Market for products and services where money flows from workers, in the form of salary, back to firms, as a form of goods and services.
• Market for factors of production, where firms purchase means for production, such as labor or capital from households in exchange for money.

Answer 2

Answer:

Option B, The market for factors of production connects household spending to goods produced by firms, is correct.

Explanation:

Option B is true because, in the circular flow diagram, three main players are households, government, and firms. Where households and firms are connected in two ways. First, the household provides labor to the firms and get income against the provided labor. Secondly, this income is spent by households on the goods and services produced by the firms.