Question

Which of the following statements is true about a simple circular flow model?

a) It includes only businesses and households.
b) Government and international trade are excluded.
c) Savings and investments are not considered.
d) It operates in a closed economic system.

Answer 1

The true statement about a simple circular flow model is that government and international trade are excluded. The model represents the flow of goods, services, and money between businesses and households.

Step-by-step explanation:

The true statement about a simple circular flow model is that government and international trade are excluded. The model represents the flow of goods, services, and money between businesses and households.

It shows how individuals exchange labor for income, and then use that income to purchase goods and services from businesses.

Although the model is simplified, it can be expanded to include other elements like financial markets, governments, and global interactions.