If firms' sales fall, what further effect may occur on household income?
Answer and explanation
Correct answer: Factor income may fall
In the two-sector circular flow, firms receive revenue from selling goods and services and use it to pay households for labour and other factor services. If sales decline, firms may reduce output and demand fewer factors. Lower employment, wages, rent, interest, or profit distributions can therefore reduce household factor income. The effect is a possible reduction, not an automatic result in every situation.
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What is the correct answer to this question?
Factor income may fall
Why is this the correct answer?
In the two-sector circular flow, firms receive revenue from selling goods and services and use it to pay households for labour and other factor services. If sales decline, firms may reduce output and demand fewer factors. Lower employment, wages, rent, interest, or profit distributions can therefore reduce household factor income. The effect is a possible reduction, not an automatic result in every situation.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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