The circular flow diagram is a basic model used in economics to show how an economy functions. Primarily, it looks at the way money, goods, and services move throughout the economy.
The circular flow has both an inner and an outer flow, I will concentrate now on the inner flow: HOUSEHOLDS The above diagram is the inner flow of the circular flow of income. The circular flow of income model is a model used to show the flow of income through an economy.
Through showing the leakages in the economy and the injections, the different factors affecting the economic activities are apparent. The circular flow of income model is a model used to show the flow of income through an economy. Through showing the leakages in the economy and the injections, the different factors affecting the economic activities are apparent. CIRCULAR FLOW BETWEEN HOUSEHOLDS AND FIRMS: The diagram above represents the circular flow between households and firms.
There are four flows in the above diagram. First, flows of factors of production (land, labour, capital, entrepreneurship) from households to firms. A simple model of the workings of an economy depicting the movement of resources between producers and consumers. A number of flows comprise the circular flow of income.
First, there are the wages and salaries paid by firms to households. Secondly, there is the money spent by households and received by firms. The free economy research paper (Circular Flow of Economics essay) presented on this page should not be viewed as a sample of our online writing service. If you need fresh and competent research writing on economy, use the professional writing service offered by our company. The Circular Flow Model Accompanied by Reverse Flows Essay 1115 Words 5 Pages.
The Circular Flow Model Accompanied by Reverse Flows The circular flow model is defined as the flow of resources from households to firms and of In the circular flow of income model is the overseas sector which transforms the model from a closed economy to an open economy. The main withdrawal from this sector are imports (M), which represent spending by residents into the rest of the world.
In the circular flow of income savings are leakages as it is money withdrawn causing a reduction in both the circular flow of income and in economic activity. The leakage of savings causes a fall in expenditure on goods and services, a fall in production, a fall in the demand for resources and a fall in income to the owners of those resources.