NEED HELP WITH CIRCULAR FLOW MODEL QUESTION

Question

describe the relationship between the income flow and the expenditure flow as they each relate to Gross Domestic Product (GDP).

Answer 1

Dear Lilly,

The question ask describe = give traits or characteristics about the relationship/link between spending and income, thus provide the links between income and spending in an (circular )economy. In its simplest form, revenue earned by firms by selling their output ultimately flows to households, which spend this income on products from firms. because of increase in consumption from household (consumer) and increase in supply/production from firms thus the GDP will increase due to the relationship between household and firms.