Question

How does the circular flow of income primarily affect households or firms?

It establishes the number of people residing in a household.
It dictates the kinds of goods and services that firms produce.
It determines who is hired and who is fired at the majority of businesses.
It provides the income that workers need to live and the revenue that businesses need to run.

Answer 1

It provides the income that workers need to live and the revenue that businesses need to run.

Explanation: In the circular flow, households supply factors of production (labor, capital) to firms and receive wages, rent, interest, and profits. Households then spend on firms’ goods and services, giving firms the revenue to pay for inputs and continue production.