Blank 1: Households or Firms Blank 2: Goods and Services or Labor and Capital 1.

Question

Blank 1: Households or Firms

Blank 2: Goods and Services or Labor and Capital

1. The economy's income and expenditure The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. Markets for Goods and Services Firms Households Markets for Factors of Production Based on this model, households earn income when purchase in markets for factors of production.

Explanation / Answer

In the circular flow model of an economy,

Households ownes all the resources, house holds earns their income when firms purchases or rent these resources mean labour and capital to produce the goods and services.

Firms in turn earns money/ revenue when households buys goods and services.

market for factors of production

A flow from firms to houshold :

The $ 350 gilberto spends to purchase air travel to hawaii from flyway airlines

because, in the circular flow diagram represents that firm will earn revenue when they provide goods or services to housholds.

For economy as a whole,

Expenditure must equals income because for every transaction there will be two parties i.e., buyer and seller one who spending money for purchasing will be equal to sale (income) for other party.

Gilberto spends $350 to purchase air travel to hawaii from flyway airlines Market for goods and services Junaita spends $9 for her car to be washed Market for goods and services Gilberto earns $225 per week working for spotless car wash

market for factors of production

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