AP Macroeconomics Question 31: Answer and Explanation

Test Information

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Question: 31

5. Which of the following is a direct, accurate link within the circular flow?

  • A. Goods and services are exchanged for inputs via the factor markets.
  • B. Wages and rents are exchanged for income via the product markets.
  • C. Household expenditures result in revenues for firms via the product markets.
  • D. Household income results in revenues via the factor markets.
  • E. Firms exchange revenues for land, labor, and capital via the product markets.

Correct Answer: C

Explanation:

C As illustrated in the circular flow diagram, goods and services are exchanged for dollars in the product markets. Wages and rents are exchanged for inputs in the factor markets. Household income funds expenditures, which result in revenues via the product markets. And firms exchange revenues for goods and services. The correct answer is that household expenditures do result in revenues for firms via the product markets.