Question

In a two sector economy, the flow of factor payments moves from ______ to ______.

Options

• firms, households

• firms, government

• banks, households

• households, firms

Answer 1

In a two sector economy, the flow of factor payments moves from firms to households.

Explanation:

In the two‑sector (households and firms) model firms hire factor services (labour, capital, land, entrepreneurship) and make factor payments wages, interest, rent, profits to households; thus factor payments flow from firms to households.