Question

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Answer 1

Answer:

Households and firms have four main interactions with each other, according to the circular flow of the economy.

Explanation:

Households sell or rent the factors of production to firms (labor and capital), and firms use these factors to produce goods and services which they in turn sell to households.

Firms pay households for these factors of production in the form of wages (to pay for labor), or rent and dividends (to pay for capital). Households in turn, spend money in the goods and services that the firms produce, which forms the consumer expenditure component of Gross Domestic Product.