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Circular Flow Model
The Circular Flow is an abstract,
oversimplified model, showing how
economic transactions [resources,
products (g/s), and money] take place.
1
2
Products
[goods/services]
1 a. Goods and services
2 b. Consumer expenditures
Businesses
4 c. Land, labor, cap., entrepreneur
3 d. Rent, wages, interest, & profits
3
4
Resources
[Land, labor, cap., ent.]
Householders
D
D
S
Resource Market
Product Market
1
2
Resources
[Land, labor, cap., ent.]
3 a. Goods and services
4 b. Consumer expenditures
Businesses
2 c. Land, labor, cap., entrepreneur
1 d. Rent, wages, interest, & profits
3
4
S
Products
[goods/services]
Householders
RESOURCE MARKET
1
2
Mechanic
4 A.
3 B.
C.
D.
BUSINESSES
Products [Goods/services]
Consumer expenditures
Land, Labor, Capital, Entrepreneur
Rent, Wages, Interest Profits
3
4
PRODUCT MARKET
HOUSEHOLDS
RESOURCE MARKET
1
2
Mechanic
4
3
1
2
BUSINESSES
A.
B.
C.
D.
Products [Goods/services]
Consumer expenditures
Land, Labor, Capital, Entrepreneur
Rent, Wages, Interest Profits
3
4
PRODUCT MARKET
HOUSEHOLDS
Product Market
1
2
2
1
4
Households
3
3
What flow are the following?
A. Consumer expenditures?
Businesses
B. Goods and services?
C. Land, labor, capital,
and entrepreneurs?
D. Rent, wages, interest,
Businesses
and profits?
Labor
4
Resource Market
Resource Market
Labor
1
Businesses
Businesses
2
What flow are the following?
4 A. Goods/services?
3 B. Consumer expenditures?
1 C. Land, labor, capital and
entrepreneurial ability?
2 D. Rent, wages, interest,
and profits?
Outhouse
3
4
Product Market
Households
$ COSTS
NET TAXES FLOW
TO GOVERNMENT
FROM BUSINESSES
RESOURCE
MARKET
$ INCOMES
GOVERNMENT
GOODS & SERVICES
FLOW TO BUSINESSES
RESOURCES
INPUTS
G/S
HOUSEHOLDS
BUSINESSES Taxes
GOVERNMENT
GOODS &
SERVICES
GOODS &
SERVICES
PRODUCT
MARKET
$ REVENUE
$ CONSUMPTION
$ COSTS
GOODS & SERVICES
FLOW TO HOUSEHOLDS
FROM GOVERNMENT
RESOURCES
RESOURCE
MARKET
$ INCOMES
NET TAXES FLOW
TO GOVERNMENT
FROM HOUSEHOLDS
INPUTS
G/S
National Defense
BUSINESSES
GOVERNMENT
GOODS &
SERVICES
Taxes
HOUSEHOLDS
GOODS &
SERVICES
PRODUCT
MARKET
$ REVENUE
$ CONSUMPTION
$ COSTS
$ INCOMES
RESOURCE
MARKET
RESOURCES
L,L,C,E
BUSINESSES
INPUTS
HOUSEHOLDS
GOVERNMENT
GOODS &
SERVICES
EXPENDITURES
FLOW TO
ACQUIRE RESOURCES
$ REVENUE
GOODS
&
RESOURCES
SERVICES
FLOW TO
GOVERNMENT
PRODUCT
MARKET
$ CONSUMPTION
GOVERNMENT
$ COSTS
EXPENDITURES
FLOW TO
PRODUCT MARKET
RESOURCE
MARKET
RESOURCES
$ INCOMES
GOODS & SERVICES
FLOW TO
GOVERNMENT
INPUTS
GOVERNMENT
BUSINESSES
GOODS &
SERVICES
HOUSEHOLDS
B-2 Bombers
GOODS &
SERVICES
PRODUCT
MARKET
$ REVENUE
$ CONSUMPTION
Note Sheet Questions 47-50
1
2
Labor
Which Flow Represents?
Businesses
Businesses
4
3
2
1
A. Consumer expenditures?
B. Good/Services being sold?
C. Land, labor, capital and
entrepreneurial ability?
D. Rent, wages, interest,
Households
and profits?
Fuzzy Wuzzy
3
4
$ COSTS
$ INCOMES
RESOURCE
MARKET
RESOURCES
INPUTS
BUSINESSES
HOUSEHOLDS
GOODS &
SERVICES
GOODS &
SERVICES
PRODUCT
MARKET
GDP
$ REVENUE
$ CONSUMPTION
The End