Chapter 10, Problem 2CYU

To determine

The question requires us to determine the sectors that connect the firms, households, and markets.

Explanation of Solution

In an economy, firms produce goods and services and sell these to households, the government, and the rest of the world (as export) in the market for goods and services.

The households are linked with firms, the government, and the financial sector in the following way:

• Firms: Households are linked with firms in both the factor market and the goods and services market. Households sell factors of production to the firms and buy goods and services from the firms.
• Government: Households pay taxes to the government and receive subsidies from the government.
• Financial sector: Households save a proportion of their income in the financial sector.