Explanation:

- Option 1: Households, firms

- A two-sector economy commonly includes households and firms.

- Households provide factors of production like labor.

- Firms produce goods and services.

- This model focuses on the circular flow of income and expenditure between these two entities.

- Correct Answer

- Option 2: Households, Government

- A three-sector model might include government with households.

- Government interacts through taxation and spending.

- Option 3: Firms, Foreign sector

- This involves international trade aspects, often seen in a four-sector model.

- Exports and imports play a role here.

- Option 4: Firms, Government

- Government and firms interact through regulations and public goods.

- This again usually looks beyond the simple two-sector framework.