circular flow chapter 2-3. transactions: the circular-flow diagram trade takes the form of barter...
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Circular Flow Circular Flow Chapter 2-3
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Transactions: The Circular-Flow Transactions: The Circular-Flow DiagramDiagram
Trade takes the form of barter when people directly exchange goods or services that they have for goods or services that they want.
The circular-flow diagram is a model that represents the transactions in an economy by flows around a circle.
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The Circular-Flow DiagramThe Circular-Flow Diagram
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Circular-Flow of Economic Circular-Flow of Economic ActivitiesActivities
A household is a person or a group of people that share their income.
A firm is an organization that produces goods and services for sale.
Firms sell goods and services that they produce to households in markets for goods and services.
Firms buy the resources they need to produce—factors of production—in factor markets.
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The Circular FlowThe Circular Flow
Goods
Other countriesOther countries
Financial marketsFinancial markets
GovernmentGovernmentFirms
(production)HouseholdTaxes
Factor services
SavingsImports
Government
Spending
Wages, rents, interest, profits
Exports
Investment
Personal consumption
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Growth in the U.S. Economy Growth in the U.S. Economy from 1962…from 1962…
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……to 1988to 1988