INTERDEPENDENCE& THE

CIRCULAR FLOW MODEL

Households

Businesses

Government

What are the 3 major sectors of the economy?

Land (natural resources)

Labor (human resources)

Capital (Tools, equipment, buildings)

Entrepreneurship (New business risk-taker)

What are the 4 Productive Resources?

$Rent (land)+

$Wages (labor)+

$Interest (capital)+

$Profit (entrepreneurs)=

Household income $$$$$$$$$$$$

What are the Money Payments to Households?

Spending

Taxes

Savings & Investing

What are the three activities for which households use income?

SpendingOn what is it spent?

PRIVATE GOODS & SERVICES

Which of those 3 is the largest % of income?

TAXESTO OBTAIN

PUBLIC GOODS &SERVICES

For what is the 2nd biggest %used?

What do Households do with income that is not

Spent or Taxed?

S A V I N G S

WHERE DO THEY KEEP THEIR SAVINGS?????

BANKS

BROKERS

What do the Banks & Brokers do with HOUSEHOLD SAVINGS????

INVESTWhere?

In businessesLarge & Small

Constructing the Circular Flow Model

Place the pieces on the blank model that you have using the

steps on the second question set.

CIRCULAR FLOW ANALYSIS TOOL

CIRCULAR FLOW ANALYSIS TOOL (Standard Two, Macro) Become an Economic Detective. Amaze your friends and family with your ability to explain, analyze,

and make predictions about the whats, whys and wherefores of past and future economic issues and

events.

CIRCULAR FLOW ANALYSIS TOOL

The following tool uses the circular flow model to illustrate how an event or events in one part of an economy affects other major sectors of the economy. Use this tool to analyze the impact on the circular flow of economic activity. A particular event may affect only the producers and consumers of a specific good, such as a freeze that destroys the Florida orange crop, causing specific consumers and producers to adjust their economic choices and decisions.

CIRCULAR FLOW ANALYSIS TOOL

These effects generally don’t impact larger segments of the economy. (Microeconomics) However, to the extent that large numbers of household incomes are affected by major decisions and events, the economies at local, state, national, and international levels will reflect the choices made by those households, businesses, and governments. (Macroeconomics)

Circular Flow ToolWhen given an event or an article, the detective will be able to use the following tool. It has 2 parts.

A. On which part of the circular flow does this event first occur or on what part of the flow did the decision first occur?

B. Trace the effects on the other parts of the flow.