Attempts 0.3 Keep the Highest 0.3/1 2. Understanding the circular flow between households and firms The relationship between businesses and households determines how income and output flow through the economy. Businesses purchase resources (such as labour) from households and use them to produce goods and services, which they sell to households in exchange for part of the income households earn in selling their resources to businesses. Therefore, there is a circular flow of output and income that is coordinated by four macroeconomic markets: goods and services, resources, loanable funds, and foreign exchange. As GDP can be computed either by summing the value of output produced over a given period of time (which is equivalent to adding up the spending of consumers, investors, the government, and foreigners) or income payments (wages, rents, interest, and profit) over a given period of time, the circular flow model implies that aggregate expenditure must equal aggregate income. The following table lists two sectors of the economy. Fill in the table with what flows into that particular sector in the first column and what flows out of the sector in the second column. Sector Financial market Households Amount Flowing In Amount Flowing Out