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The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. Learn diagram quiz circular flow with free interactive flashcards. This quiz will test the knowledge acquired by students during the lecture periods focused on the circular flow of the market economy. Economics - Chapter 2 Study Guide Flashcards | Quizlet Economics Chapter 2. capitalism. public utility. The circular flow diagram is a basic model used in economics to show how an economy functions. profits. To this we add the government sector so as to make it a three-sector closed model of circular flow of economic activity. Here’s how it works: When households need a good or service, their money flows to the product market in a process called consumer spending. 13122015 econ micro spring 2015 final exam flashcards quizlet 316 comparative advantage the ability of an individual a firm or a country to produce a good or service at a lower opportunity cost than competitors. an economic system in which the means of production are privat…. Discuss all the ways the circular-flow model was altered to incorpo­ rate the government sector and suggest that even more changes would have to be made to the chart if we were to incorpo­ The model represents all of the actors in an economy as either households or firms (companies), and it divides markets into two categories: Primarily, it looks at the way money, goods, and services move throughout the economy. the stream of For this, we add taxes and government purchases (or expenditure) in our presentation. an industry that serves the public interest. Circular flow Diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. Definition: A Circular flow model of the economy is a graphical representation of the movement of money between three sectors – businesses, households, and the government – and three markets – production factors, products, and the financial market. Breaking down Circular Flow Diagram. Search. In the simple circular flow model of the free market, money flows in the opposite direction. ; To provide goods and services to households, the product market purchases them from businesses, generating revenue. It illustrates the balance between injections and leakages in our economy. in the circular economic flow diagram, households quizlet LESSON 10 THE CIRCU AR FLOW OF ECONOMIC ACTIVITY 12. Withdrawals are increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output) Injections into the circular flow are additions to investment, government spending or exports so boosting the circular flow of income leading to a multiplied expansion of output. Close. The circular flow of economic activity is a model showing the basic economic relationships within a market economy. What Does Circular Flow Model Mean? The Circular Flow in a Three-Sector Economy: So far we have been working on the circular flow of a two-sector model of an economy. ; To make goods and services … One of the main basic models taught in economics is the circular-flow model, which describes the flow of money and products throughout the economy in a very simplified way. What is the definition of circular flow model? Project Visual 10.2, and ask the students to compare this diagram with the diagram on Activity 10.5. circular flow. 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