Which of the following statement is true?
Statement 1 : Household spends their income on the goods and services produced by the producing sector .
Statement 2: Money flow backs to the producing sector as household expenditure.
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Both the statements are true
Statement 1 : Household spends their income on the goods and services produced by the producing sector. This is correct. Households typically spend their income on goods and services produced by the producing sector (firms), which include consumer goods and services.
Statement 2: Money flow backs to the producing sector as household expenditure. This is also correct. In the circular flow of income model, money flows from households to the producing sector as expenditure on goods and services, completing the cycle of economic activity.