In a Simple Circular-Flow Diagram, Why Is Total Income Equal

question 47

Multiple Choice

In a simple circular-flow diagram, why is total income equal to total expenditure?

• A) because firms re-invest their profits
• B) because savings are small
• C) because income from interest is not part of GDP
• D) because every transaction has a buyer and a seller

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Definitions:

Hybrid Costing System

A costing methodology that combines elements of both job costing and process costing, used in manufacturing of goods with some common and some unique characteristics.

Professional Service Firms

Businesses that offer specialized services requiring professional skills, such as law, consulting, and accounting firms.

Mass Services Entities

Companies or organizations that deliver standardized services to a large number of customers, focusing on efficiency and high volume.

Merchandising Entities

Companies that purchase goods at wholesale prices and sell them at retail prices, making a profit from the markup.