Consider the following statements regarding the circular flow of income in a simple economy: 1. Households provide factors of production to firms and receive wages, rent, interest, and profit in return. 2. Firms sell goods and services to households, and the entire income earned by households is spent on these goods and services. 3. In this model, the introduction of savings fundamentally changes the equality of income, production, and expenditure. Which of the statements given above is/are correct? |ForumIAS

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2, and 3

Answer: A

Notes:

Explanation:

Households supply labour, land, capital, and entrepreneurship, and receive wages, rent, interest, and profit.
Households spend all their earnings on goods and services since no savings/taxes/imports exist.
Even if savings are introduced later, the principal conclusion remains unchanged — national income can still be calculated equally by any method (income, expenditure, or production).

Source- 12th NCERT: Economics: Macroeconomics

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