What are the answer and explanation for this question Lookin

What are the answer and explanation for this question?

Looking at the circular flows model, how can the saving equals investment equation be derived?

A. By looking at flows into and out of goods markets

B. By looking at flows into and out of financial markets

C. By looking at flows into and out of households

D. By looking at flows into and out of firms

E. By looking at flows into and out of the government

Solution

The circular flow model links the households, who are the provider of services, and firms, who are users of services and provider of money. Households sell their labor to the firm and gets money for the labor provided. Out of the total earnings, households consume a part on goods and services produced by firms, and saves the rest. Savings come from this side. At the same time, firms pay money to households and receive price for the goods and services they sell. The difference between money received and money paid out is investment.

So, correct option is (B) & (D). There are 2 answers because both households and firms play equally important role into savings-investment in a 2-sector model.