In the circular flow model, which of the following is a payment households receive for providing capital?

• A. Wages
• B. Rent
• C. Interest
• D. Profits

Answer: (C)

The question taps into how households are paid for the factors of production in the circular flow model. Among the factors, capital refers to the tools, equipment, buildings, and funds that firms use to produce goods and services. The return households receive for providing capital is called interest. This is the payment for allowing firms to use their capital resources over time.

To see why others don’t fit: wages are the payment for labor, rent is the payment for land, and profits are the return to entrepreneurship (owners of the firm or those who manage it). So interest is the appropriate payment to households for providing capital.