CIRCULAR FLOW MODEL

Question 1

In the factor market, what do households and firms do

Answer 1

Households receive income in the form of wages, interest, dividends which firms use in the production process to create G%S

Question 2

In the product market, what do households and firms do

Answer 2

In the product market households spend their income in exchange for goods and services produced by firms sector

Question 3

What are savings and investments in the circular flow model and

Answer 3

Savings is the porpotion of income not spent on consumption and is leakage from the flow of current income. Investment is an injection of funds into the circular flow model