Circular Flow Model Directions

Steps:

• Recall the standard circular flow diagram: households supply resources to firms clockwise and receive goods/services anticlockwise.
• Incomes (wages, rent) flow from firms to households anticlockwise as payment for resources.
• Consumer expenditure flows from households to firms clockwise to purchase goods/services.
• Match each choice to these directions to identify the correct conclusion.

Why D is correct:

• In the circular flow model, consumer expenditure represents money payments from households to firms for goods and services, defined as flowing clockwise.

Why the others are wrong:

• A: Consumer goods and services flow anticlockwise from firms to households.
• B: Incomes flow anticlockwise from firms to households as factor payments.
• C: Resources flow clockwise from households to firms.

Final answer: D