Skip to content

CA Foundation · Business Economics · Determination of National Income

In the circular flow of income in a simple two-sector economy (households and firms), households receive income from firms in return for which of the following?

Households receive income from firms for supplying factors of production such as land, labour, capital and entrepreneurship. Firms pay rent, wages, interest and profit for these services. Household spending on goods is the reverse money flow from households to firms, not the source of household income.

  1. ASupplying factors of production such as land, labour, capital and entrepreneurshipCorrect
  2. BPurchasing final goods and services produced by firms
  3. CPaying direct taxes to the government
  4. DDepositing savings with banks

Explanation

In the real flow, households supply factor services to firms, and in the money flow firms pay rent, wages, interest and profit to households as factor incomes. Purchasing goods is the return flow of money from households to firms, not a source of household income. Taxes are absent in a two-sector model.

Did you get it right without looking?

One question tells you little. A timed set on Determination of National Income shows your real accuracy, how long you take and where you lose marks.

Practise Determination of National IncomeFree diagnostic mock

More Determination of National Income questions