Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s income’. Do you agree with the given statement? Support your answer with valid reasons.

Yes, the given statement is correct. In a two-sector economy, the firms produce goods and services and make factors payments to the households. The factor income earned by the households will be used to buy the goods and services which would be equal to the income of firms. The aggregate consumption expenditure by the households in the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy (Income of the producers).