What happens in a circular flow diagram?

Question

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In the circular flow diagram:

A.) profit flows from the product market to the firms.

B.) revenue flows from the resource market to the households.

C.) consumer spending flows from the product market to the households.

D.) consumer spending flows from the product market to the firms.

E.) consumer spending flows from households to the product market.

Answer 1

The answer is E (consumer spending flows from households to the product market). In this diagram, consumers purchase products in the product market. This spending flows from the households to the product market. It then flows from the product market to firms in the form of revenue (which is why letter "a" is incorrect).