Question

What are the entities present in an circular flow of income in a simple economy?

• A. Firms
• B. Household
• C. Bank
• D. All of the above

Answer 1

Answer: (D)

All of the above

Circular flow of income refers to the flow of national income between the various economic agents.

The term 'economic agents' in a simple economy refers to the households in the economy, who provide factors of production and earn income; the firms in the economy, who employ factors of production and sell output produced to generate revenue; the government who plays an active role in providing the economic infrastructure and collects revenue for the same; and the banks who help in the process of savings and mobilisation of savings in the economy.