Download Economic (Circular) Flow Reading What is Economic Flow? In the

Economic (Circular) Flow Reading
What is Economic Flow?
In the US Economy, resources, goods and services, and money flow among individuals
(also known as households), businesses, and markets. The term “economic flow” describes how
these resources, goods, and services flow in the United States. This can also be called “circular
flow” because the resources, goods, and services move around the economy continuously
(without stopping), just like a circle. On example of this economic or circular flow can be seen
in the production of Kellogg’s Pop Tarts and McDonald’s Fish McBites.
How does Economic Flow work?
Economic or circular flow begins with an individual or household. Individuals and
households own resources used in production. One example of an individual is a
strawberry farmer who owns strawberries, which is another natural resource.
One example of an individual is a fisherman who owns fish, which is a
natural resource Individuals sell these resources to businesses, such as the strawberry farmer selling
the strawberries to Kellogg’s or the fisherman selling fish to McDonald’s. The fisherman and
farmers may take the income (money they earn) and buy products they want or need.
Businesses like Kellogg’s or McDonald’s buy resources from individuals. What makes a
business different from an individual is that they turn a resource into a product. For example,
Kellogg’s turns strawberries into Pop Tarts. McDonald’s turns fish into Fish McBites.
Businesses then sell the products to individuals, other businesses, and the government. For
example, a farmer, President Obama, or Harris Teeter could all buy Pop Tarts. Businesses use
the profits from selling their product to buy more resources.
Individuals and businesses both have money that they want to save or invest.
Individuals and businesses may also want to get financial capital, either for individual
consumption or business expansion. Because of this, private financial institutions,
such as Wells Fargo or Navy Federal Credit Union are the places where individuals
and businesses save, invest, and get their financial capital.
Every time an individual or business hands over money, the government takes taxes. The
government can tax the sale of resources and products, as well as the income individuals and
businesses make. This tax revenue is used to provide public goods and services for citizens. For
example, the US Government uses tax revenue to pay for schools, roads, and the postal service
(US mail).