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The two sectors in a two-sector circular flow model are:
AHouseholds and the firms
BFirms and the government sector
CHouseholds and the government
DFirms and the external sector
Answer & Solution
Correct answer: A. Households and the firms
1. The two-sector model represents a simple economy.
2. Its two sectors are the household sector and the firm sector.
3. The household sector is the sole buyer of goods and services and the sole supplier of the factors of production, namely land, labour, capital and organisation.
4. The firm sector generates revenue by selling goods and services to households and sells its entire output to them.
5. Adding government gives the three-sector model, and adding the external sector as well gives the four-sector model.
_Source: TN HSC Class 12 Economics (Samacheer Kalvi, Govt of Tamil Nadu), Ch 1 "Introduction to Macro Economics", §1.9.1_
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