circular flow of income
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Circular flow of income
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In this simplified image, the relationship between the decision-makers in the circular flow model
is shown. Larger arrows show primary factors, whilst the red n,.0p;smaller arrows show
subsequent or secondary factors.
In economics, the terms circular flow of income or circular flow refer to a simple economic
model which describes the reciprocal circulation of income between producers and
consumers.[1][2]
In the circular flow model, the inter-dependent entities of producer and consumer
are referred to as "firms" and "households" respectively and provide each other with factors in
order to facilitate the flow of income.[1]
Firms provide consumers with goods and services in
exchange for consumer expenditure and "factors of production" from households. More complete
and realistic circular flow models are more complex. They would explicitly include the roles of
government and financial markets, along with imports and exports.
Human wants are unlimited and are of recurring nature therefore, production process remains a
continuous and demanding process. In this process, household sector provides various factors of
production such as land, labor, capital and enterprise to producers who produce by goods and
services by coordinating them. Producers or business sector in return makes payments in the
form of rent, wages, interest and profits to the household sector. Again household sector spends
this income to fulfill its wants in the form of consumption expenditure. Business sector supplies
them goods and services produced and gets income in return of it. Thus expenditure of one sector
becomes the income of the other and supply of goods and services by one section of the
community becomes demand for the other. This process is unending and forms the circular flow
of income, expenditure and production. [3]
A continuous flow of production, income and expenditure is known as circular flow of income. It
is circular because it has neither any beginning nor an end. The circular flow of income involves
two basic assumptions:- 1.In any exchange process, the seller or producer receives the same
amount what buyer or consumer spends. 2.Goods and services flow in one direction and money
payment to get these flow in return direction, causes a circular flow.
Circular flows are classified as: Real Flow and Money Flow. Real Flow- In a simple ♙, the flow
of factor services from households to firms and corresponding flow of goods and services from
firms to households is known to be as real flow.
Assume a simple two sector economy- household and firm sectors, in which the households
provides factor services to firms, which in return provides goods and services to them as a
reward. Since there will be an exchange of goods and services between the two sectors in
physical form without involving money, therefore, it is known as real flow.
Money Flow- In a modern two sector economy, money acts as a medium of exchange between
goods and factor services. Money flow of income refers to a monetary payment from firms to
households for their factor services and in return monetary payments from households to firms
against their goods and services. Household sector gets monetary reward for their services in the
form of rent, wages, interest, and profit form firm sector and spends it for obtaining various types
of goods to satisfy their wants. Money acts as a helping agent in such an exchange.
Assumptions
The basic circular flow of income model consists of seven assumptions:
1. The economy consists of two sectors: households and firms.
2. Households spend all of their income (Y) on goods and services or consumption (C).
There is no saving (S).
3. All output (O) produced by firms is purchased by households through their expenditure
(E).
4. There is no financial sector.
5. There is no government sector.
6. There is no overseas sector.
7. It is a closed economy with no exports or imports.
Two Sector Model
Simply put, two sector circular flow of income model the state of equilibrium is defined as a
situation in which there is no tendency for the levels of income (Y), expenditure (E) and output
(O) to change, that is:
Y = E = O
This means that the expenditure of buyers (households) becomes income for sellers (firms). The
firms then spend this income on factors of production such as labour, capital and raw materials,
"transferring" their income to the factor owners. The factor owners spend this income on goods
which leads to a circular flow of income.
Three Sector Model
It includes household sector, producing sector and government sector. It will study a circular
flow income in these sectors excluding rest of the world i.e. closed economy income. Here flows
from household sector and producing sector to government sector are in the form of taxes. The
income received from the government sector flows to producing and household sector in the
form of payments for government purchases of goods and services as well as payment of
subsides and transfer payments. Every payment has a receipt in response of it by which
aggregate expenditure of an economy becomes identical to aggregate income and makes this
circular flow unending.
Four Sector Model
A modern monetary economy comprises a network of four sector economy these are-
1.Household sector 2.Firms or Producing sector 3.Government sector 4.Rest of the world sector.
Each of the above sectors receives some payments from the other in lieu of goods and services
which makes a regular flow of goods and physical services. Money facilitates such an exchange
smoothly. A residual of each market comes in capital market as saving which inturn is invested
in firms and government sector. Technically speaking, so long as lending is equal to the
borrowing i.e. leakage is equal to injections, the circular flow will continue indefinitely.
However this job is done by financial institutions in the economy. Reference- S. Dinesh
Introduction to Macro Economics .
Five sector model
Table 1 All leakages and injections in five sector model
LEAKAGES INJECTION
Saving (S) Investment (I)
Taxes (T) Government Spending (G)
Imports (M) Exports (X)
LEAKAGES:-Leakage means withdrawal from the flow.When households and firms
save part of their incomes it constitutes leakage.They may be in form of tax
payments and imports also.Leakages reduce the flow of income.
INJECTIONS:-Injections means introduction of income into the flow.When
households and firms borrow the savings,they constitute injections.Injections
increase the flow of income.Injections can take the forms of (a)
investment,(b) government spending and (c) exports.So long as leakages are
equal to injections circular flow of income continues indefinitely.Financial
institutions or capital market play the role of intermediaries.
Circular flow of income diagram
The five sector model of the circular flow of income is a more realistic representation of the
economy. Unlike the two sector model where there are six assumptions the five sector circular
flow relaxes all six assumptions. Since the first assumption is relaxed there are three more
sectors introduced. The first is the Financial Sector that consists of banks and non-bank
intermediaries who engage in the borrowing (savings from households) and lending of money. In
terms of the circular flow of income model the leakage that financial institutions provide in the
economy is the option for households to save their money. This is a leakage because the saved
money can not be spent in the economy and thus is an idle asset that means not all output will be
purchased. The injection that the financial sector provides into the economy is investment (I) into
the business/firms sector. An example of a group in the finance sector includes banks such as
Westpac or financial institutions such as Suncorp.
The next sector introduced into the circular flow of income is the Government Sector that
consists of the economic activities of local, state and federal governments. The leakage that the
Government sector provides is through the collection of revenue through Taxes (T) that is
provided by households and firms to the government. For this reason they are a leakage because
it is a leakage out of the current income thus reducing the expenditure on current goods and
services. The injection provided by the government sector is Government spending (G) that
provides collective services and welfare payments to the community. An example of a tax
collected by the government as a leakage is income tax and an injection into the economy can be
when the government redistributes this income in the form of welfare payments, that is a form of
government spending back into the economy.
The final sector 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 leakage from this sector are
imports (M), which represent spending by residents into the rest of the world. The main injection
provided by this sector is the exports of goods and services which generate income for the
exporters from overseas residents. An example of the use of the overseas sector is Australia
exporting wool to China, China pays the exporter of the wool (the farmer) therefore more money
enters the economy thus making it an injection. Another example is China processing the wool
into items such as coats and Australia importing the product by paying the Chinese exporter;
since the money paying for the coat leaves the economy it is a leakage.
In terms of the five sector circular flow of income model the state of equilibrium occurs when
the total leakages are equal to the total injections that occur in the economy. This can be shown
as:
Savings + Taxes + Imports = Investment + Government Spending + Exports
OR
S + T + M = I + G + X.
This can be further illustrated through the fictitious economy of Martinland where:
S + T + M = I + G + X
$100 + $150 + $50 = $50 + $100 + $150
$300 = $300
Therefore since the leakages are equal to the injections the economy is in a stable state of
equilibrium. This state can be contrasted to the state of disequilibrium where unlike that of
equilibrium the sum of total leakages does not equal the sum of total injections. By giving values
to the leakages and injections the circular flow of income can be used to show the state of
disequilibrium. Disequilibrium can be shown as:
S + T + M ≠ I + G + X
Therefore it can be shown as one of the below equations where:
Total leakages > Total injections
$150 (S) + $250 (T) + $150 (M) > $75 (I) + $200 (G) + 150 (X)
Or
Total Leakages < Total injections
$50 (S) + $200 (T) + $125 (M) < $75 (I) + $200 (G) + 150 (X)
The effects of disequilibrium vary according to which of the above equations they belong to.
If S + T + M > I + G + X the levels of income, output, expenditure and employment will fall
causing a recession or contraction in the overall economic activity. But if S + T + M < I + G + X
the levels of income, output, expenditure and employment will rise causing a boom or expansion
in economic activity.
To manage this problem, if disequilibrium were to occur in the five sector circular flow of
income model, changes in expenditure and output will lead to equilibrium being regained. An
example of this is if:
S + T + M > I + G + X the levels of income, expenditure and output will fall causing a
contraction or recession in the overall economic activity. As the income falls (Figure 4)
households will cut down on all leakages such as saving, they will also pay less in taxation and
with a lower income they will spend less on imports. This will lead to a fall in the leakages until
they equal the injections and a lower level of equilibrium will be the result.
The other equation of disequilibrium, if S + T + M < I + G + X in the five sector model the levels
of income, expenditure and output will greatly rise causing a boom in economic activity. As the
households income increases there will be a higher opportunity to save therefore saving in the
financial sector will increase, taxation for the higher threshold will increase and they will be able
to spend more on imports. In this case when the leakages increase they will continue to rise until
they are equal to the level injections. The end result of this disequilibrium situation will be a
higher level of equilibrium.
Significance of Study of Circular Flow of Income
The book A General Approach to Macroeconomic Policy [4][citation needed]
identifies four possible
areas of significance:
1. Measurement of National Income - National income is an estimation of aggregation of
any of economic activity of the circular flow. It is either the income of all the factors of
production or the expenditure of various sectors of economy. However, aggregate amount
of each of the activity is identical to each other.
2. Knowledge of Interdependence - Circular flow of income signifies the interdependence
of each of activity upon one another. If there is no consumption, there will be no demand
and expenditure which in fact restricts the amount of production and income.
3. Unending Nature of Economic Activities - It signifies that production, income and
expenditure are of unending nature, therefore, economic activities in an economy can
never come to a halt. National income is also bound to rise in future.
4. Injections and Leakages
Difference between Real Flow and Money Flow
1. Real flow is the exchange of goods and services between household and firms whereas money
flow is the monetary exchange between two sectors.
2. In real flow household sector supplies raw material, land, labour, capital and enterprise to
firms and in return firms sector provides finished goods and services to household sector.
Whereas in money flow, firm sector gives remuneration in the form of money to household
sector a wages and salaries, rent, interest etc.
3. Difficulties of barter system for the exchange of goods and factor services between households
and firms sector in real flow, whereas no such difficulty or inconvenience arise in money flow.
4. When goods and services flow from one sector of the economy to another, it is known as real
flow.
Phases or Stages of Circular Flow of Income
Production, consumption expenditure and generation of income are the three basic economic
activities of an economy that go on endlessly and are titled as circular flow of income.
Production gives rise to income, income gives rise to demand for goods and services ; such a
demand gives rise to expenditure and expenditure induces for further production. The whole
process forms the basis for circular flow of income and related activities- production, income and
expenditure are known as phases or stages of circular flow of income.
Further reading
1. Sloman, John (1999). Economics, 3rd edition. Prentice Economics. Europe: Prentice-
Hall. ISBN 0-273-65574-4.
2. Mankiw, Gregory (2006). Principles of Economics. Thomson Europe. ISBN 1-84480-
133-0.
See also
Wikimedia Commons has media related to Circular flow diagrams.
History of economic thought
Barter economy
Free-market economy
Market
LEAKAGES:-Leakage means withdrawal from the flow.When households and firms
save part of their incomes it constitutes leakage.They may be in form of tax
payments and imports also.Leakages reduce the flow of income.
INJECTIONS:-Injections means introduction of income into the flow.When
households and firms borrow the savings,they constitute injections.Injections
increase the flow of income.Injections can take the forms of (a)
investment,(b) government spending and (c) exports.So long as leakages are
equal to injections circular flow of income continues indefinitely.Financial
institutions or capital market play the role of intermediaries.
=References
1. ^ Jump up to: a b Sloman, John. (1999), page 12
2. Jump up ^ Mankiw, Gregory. (2006), page 23
3. Jump up ^ Dinesh, S. Introduction to Macroeconomics
4. Jump up ^ A General Approach to Macroeconomic Policy.
Categories:
Economics models
Circular Flow of Economic Activity
By Tejvan Pettinger on September 10, 2009 in economics
Readers Question I am having trouble understanding the circular flow of economics. Could you
explain it in simple terms, like how is it involved in my life, I don’t get the connection to the
product and factor markets
The circular flow of income is a simple model to explain basic economic transactions.
To start off, consider 2 groups of people
Households – people like yourself Firms – companies like BMW, Vodafone e.t.c.
Householders (people like you or me) could get a job in a factory making cars. This leads to an
output of goods.
In return workers get income (wages) from the firm.
With this income we can buy the goods firms are producing. This is Expenditure.
Thus in a closed economy with no saving, tax or imports. Total Output should be the same as
Total Income and Total Expenditure.
Note: Factor markets is markets like labour markets. Product markets are the production of goods like cars
Therefore, this is the very basic circular flow of income.
To this circular flow you could add a government which collects taxes from firms and
households and spends money in the form of benefits and subsidies.
Also you could add a foreign dimension.
Goods and services could be exported – Money comes into economy Goods and services could be imported – Money leaves the economy
Diagram to Show Circular Flow of Income
Circular Flow
Also, we don’t spend all the money we receive, but will save some in banks. Firms could borrow
from banks to invest.
MEANING OF CIRCULAR FLOW OF INCOME
Production is a continuous process in an economy.Various factors of
production like land,labour,capital and entrepreneurship are combined
together for the production of goods and services.The supply of these
factors of production comes from household sector.The factors offer their
services to the producers(also known as firm)who in return produce goods
and sevices.They make payments as reward in the form of
rent,wages,interest and profit.They household sector spends this money
on goods and services produced by the films.Thus,income or money first
folws from the firms to the households in the form of factors payments
and then from households to the firm to the form of consumption
expenditure.The income continous to flow.In short,this type of economic
activity remain in action with the help of circular flow of money and goods
in four sectors:
1. Household sector
2. Producing sector
3. Government sector
4. Foreign sector
Thus,circular flow of income and product is defined as the flow of
payments and receipts for goods and services and factors services
between sectors of the economy
The Circular Flow Diagram
Economic Model #1: The Circular-Flow Diagram
One model that helps explain how a market economy works is a circular-flow diagram. A circular-flow
diagram is a visual model of the economy that illustrates how households and businesses interact
through markets for products and markets for resources. A simple circular-flow diagram is illustrated in
Figure 1.
The two types of economic agents in a simple market economy are households and business firms. A
household is a social unit comprised of those living together in the same dwelling. A business or business
firm is a company that produces goods or services, usually in an effort to make a profit. Profit is
revenues minus expenses. Revenues are the monetary income received by a business in exchange for
goods or services. Expenses are the total costs of the production of goods or services by a business.
Households interact with business firms it two distinct ways:
(1) households supply economic resources, such as labor, to businesses in exchange for income, and (2)
households use their incomes to buy goods and services produced and sold by business firms. The first
type of interaction occurs in markets for resources. The second type of interaction occurs in markets for
products.
The top half of the circular-flow diagram, which represents product markets, shows that households give
money to businesses in exchange for goods and services. Money flows counterclockwise, while the
goods and services flow clockwise. In markets for products, businesses usually are the suppliers and
households usually are the demanders. The money that flows from households to business firms is
consumption spending from the perspective of households and is revenue from the perspective of
business firms. The products that flow from business firms to households are sales by the business firms
and purchases by household consumers.
The bottom half of the circular-flow diagram, which represents resource markets, shows that businesses
give money to households in exchange for economic resources used as factors of production. For
example, when people work for a business, they are supplying their labor as a factor of production. In
exchange for their labor, households are paid wages and salaries by businesses. This is illustrated by the
counterclockwise flow of money and the clockwise flow of economic resources. In markets for economic
resources, households usually are the suppliers and businesses usually are the demanders. The monies
that flow from business firms to households are expenditures from the perspective of business firms and
incomes from the perspective of households. The labor, capital, and natural resources that flow from
households to business firms are sources of income from the perspective of households and inputs from
the perspective of businesses. Inputs are also called factors of production because they are used by
businesses to produce goods and services.
Labor is an economic resource that every household adult can potentially supply in the markets for
resources. Wages are the payments made to workers in exchange for labor, typically based upon the
amount of time worked or amount of output produced. A salary is a fixed payment made regularly to a
worker in exchange for labor. Blue-collar workers typically receive wages. White-collar workers are
typically paid salaries.
When workers receive more income than they spend on the purchases of goods and services, they are
able to create savings. Savings are the portion of a person’s income that is retained or invested for use
in the future. Household savings can become financial capital if the money is borrowed by a business
firm. For example, money that is deposited by households in a bank savings account might be loaned by
the bank to a business that needs to borrow funds to build a new factory or purchase new equipment.
When this occurs, the business firm pays interest to the bank for the borrowed funds. Interest is a rate
of return that represents compensation from the borrower or receiver of funds to the lender or
depositor of the funds. The bank, in turn, pays interest to the householders for the funds deposited in
the savings accounts. Consequently, other transactions that occur in resource markets are the supply of
financial capital by households in exchange for interest income.
If households own natural resources, such as land, they can supply them to businesses in exchange for
rent payments.
In the next module (Supply & Demand Analysis), it is important to remember the relationships between
households and business firms that are illustrated in a circular flow diagram. In product markets,
business firms supply and sell goods and services while households demand and buy them. In resource
markets, the relationship is reversed. Households supply and sell factors of production, such as labor,
while business firms demand and buy them.
Lesson10 -
The
Circular
F
low
of
Economic
Activity IN ODUCTION
E
c o
no
m
i
cs
The
circular
fl
ow o
f
e
con om ic
acti
vity
i
s a s
im
plifi
ed
macr
oecon omi c
m
odel
o
f
th
e
ba
sic e
co
n
omi
c
relati
on
ships
in
a
mark
et
ec
onom
y.
Thi
s
mod
el
gi
ves
th
e s
t u de
nt
s
a
n ov
ervi
ew o
f h
ow
h
ous
e
holds,
busin
es ses a
n d g
ov
ernm
ent
inter
a
ct
in d
ifferent
ma
r k
ets
by
e
x
ch a n ging
g
oods
and
s
ervic
es,
pr
oductiv
e
re
sour
ces
(als
o
known
as inputs
o
r
th
e factors
of
produ
cti on)
and
mo
n ey
.
Reaso
ning
P
e
ople r
esp
ond
t
o
incentiv
es
.
H
o
u
s
eh
o
lds h
ave
incent
i
ves
to pr
ovide
r
e
so
ur c
e
s
to
busin
es ses
to
r
e
c
e
ive
inc
ome
in r
etu
r
n
.
T
h
ey
then
ha
v
e
in
c
e
n
t
i
v
e
s
t
o
use
t
h
ei
r
incom
e
to
purch
as e
g
o
o
d
s a
n
d s
e
r
v
i
ce
s t
o s
a
t
i
sf
y
th
ei
r
wants.
B
u
s in
es s
es h
av
e
in
ce
n
t
i
ve
s
t
o ea
rn
pr
ofi
ts
a
n d
,
theref
or e,
to
produ
ce
t
he g
o
ods
a
n
d
s
e
r
v
ices
that
consum
er s
w
a
n t.
T
o
produc
e
g
o
ods
and
s
ervic
es,
bu
s
iness
es
n
e
ed
to
purc
h
a
se
re
s
o
ur
c
e
s
fro
m ho
u
s
eholds
. T
h
e c
ir cul ar -flow
mod
el
and
th
e
simula
tion
in
thi
s
l
esson
d
em
on
str
ate
th
es e
imp
o
r
t a
nt
r
elati
on
s
h
ip
s
.
CONCEPTS
C
ir
cula r flow of good
s,
service
s,
productive
r
esources
and
money
payments
In
ter depen den
c
e
Pr
oductive r
e
sourc
es
(
n a t
ur
a l,
human
and
capital)
R
esou
rc
e
payment
s
(wages
and
salaries,
r
ent,
int
er
est,
profit) CONTENT STA NDARDS 7.
Ma
r
kets
exist
when
buyers
and
s
eller s
intera
c
t
.
T
h is
interaction
determines
m
ar
ket
p
ri c
e
s
and
ther
eby a
lloca te s s
carce
go
o
ds
and
s
erv ices . 16
.
T
h
er e is
an
ec
onomic rol
e
for
government
t
o
play
in a
mark
et ec
onomy
w
h
e
n
e
v
e
r
th
e
benefits
of a
g
ove
rn
men t pol
ic
y
o
u twe igh
its
c
osts
.
G
ove
r n m
e
n
t
s
often
provide
for
na
ti
o
n al
d
ef
e
n s
e
,
add
res
s
e
nvir on men ta l
conc
er
ns
,
d
e
fi
n e
and
protect
prop
erty
r
i
gh
t
s
,
an
d a
tt
e
m pt t
o
m
a k
e
m
arket
s
mor
e
c
o
mp
et
i
ti
v
e.
M
ost
governm
e
nt
policie
s
al
so
redi
s
t
ribut
e
income. 18.
A
nation's
ov
erall
level
s
of
income,
emp
loy
m
ent
a
n d
pri
ces
ar
e
d
e
t
e
rmined
b
y
the
intera
c
t
ion
of sp
ending
and
product
ion
deci
sion
s
made
by all
hou
sehold
s,
firms
,
governm
ent
ag
encie
s
and
other
s
in
the
e
conomy. OBJECT IV ES
S
t u d
e
n
t
s
will 1.
Identify
and
de
s
cribe
t
h e
three
t
ypes
of
productive
resource
s
(input
s)
and
t
h e
kind
of
income
e
ac h
resour
ce
earn
s. 2
.
Analyz
e
the
e
conomic
relationship
s
between
hou
sehold
s
and
busines
ses
in a
market
e
conomy. 3
.
U
se
a ci
r
c
ul
ar-flow
di
a
gram
to
illustrat
e
the
e
conomic
relation
ships
among
house
hold
s,
busines
s es
and
government
. EC
ON
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LAR
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W
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In
th
is
l
esson ,
th
e
s
t ude
n
ts
read
a
bout
mar
ket
i
n
t e
r
a cti on s
and
par
t
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i
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sinesses
and
h
ou
s
eh olds
i
n tv 0
kinds
o
f pr
oduct
ma
rkets
a
nd
r
es
our
c
e (or
in
put)
mar
ke t s.
They
d
i
scus
s
h
ow
th
e g
over
n
m
e
nt
f
it s in
to
t
h
is mode
l
a
nd
tr
a n
s
la te
th
e
i
r
c
o
ncl
usions
i
nt o a
c
ir
cula
r -
flow
d
i
a
g
r
a
m
.
TIME
REQUIRED
7
fj
minu
t es: 45 mi
nu te
s
to
c
o
n
d
uc
t
a
n
d
discuss
t
h
e s
i
mu la
t
io
n
a
nd
3
0 m
i
nut
es
t
o c
omp le te
.
c
t
iv
i
t
ies 1
0.5
and
10.
6
MATERIALS
Not
e :
Pr
e
par
e
m
ater
i
al s
f
o
r
t
h
e
s
i
mu
l
a
ti o
n
b
efo
r e cla
ss,
m
ainl
y c
utti
n
g
ap
a
rt
a
c
t
iv
i
t
y
sh
e
ets
a
n
d
c
r
e
at
in
g
s
e
t
s
of m
a
t
e
r
i
a
l
s
f
o
r
t
h
e
s
t
udents.
I
f
po
ssi
bl
e
, l
ami
na
te
b
a
d
ge
s
,
c
a
r
d
s
a
n
d m
on ey
t
o u
s
e
i
n
m
ul
tip
le
cl
a ss es .
I
.
V
i
su
a
l
s 10
.1
a
n
d
1
0
.
2
2.
A
co
py
o
f
A
c
t
i
vi
t
y
10.1
(
t
w
o
pages)
f
or
e
a ch
s
tud
ent
3
.
E
n ou
gh
co
pi es
of
A
ct ivity
1
0
.
2
(one
B
u s
i
n
e
ss
B
a d
ge
a
n
d
1
0
$
1
00 b
ill
s)
f
o
r h
alf
t
h
e
s
t ud
ent
s
in
t
h
e cl
a
s
s
.
T
h
e se
st
ude
nts
will
r
epr
ese
nt
bu
s
i
n
e
s
s
e
s
.
4.
E
n
ou
g
h co
pies
o
f
Act
ivity 1
0. 3 (
five
H
u
m
a
n R
es
ourc
e
s ca
r ds,
fi
v
e
N
a
t u r al
R
eso
u r
ces
' c
ar
d
s
a
n
d
fi
v
e
C
a p
it
a
l
G
oo
d
s
ca
rds)
f
or
th
e
r
e
st
of t
he
s
t u de n
ts
i
n
th
e
cl
as s,
wh
o w
ill
r
epr
esen t
hou
seh
olds. Mi
x
t
h e
se
t s
u
p
so
t
h e
c
ard
s a
re
n
ot
di
st
r ib
u
t ed e
q
ua
ll
y
: M
a
k
e o
ne
set
w
it
h
15
N
atural
Re
s
our
ces ca
r ds, for ex
ampl
e, an
d
a
n
othe
r wi
th
10
H
u ma n
R
eso
u r
ce
s
c
ar ds
a
n d fi
ve Ca
pit
al
G
oo
d
s ca
r ds .
Ju
st ma
ke
s
u re
e
ach s
et
i
n
cl
u d
es
a
tot
al
of
1
5
ca
r ds .
5
.
En
ough co
pies
o
f Activ
i
ty
10.4
(
10 E
c
on o
ca
r ds) f
or
half
th
e
stud
ents
i
n
t
h e
clas
s.
You will
to
c
u t the
se
c
a
r
ds
a
p
art,
b
u
t
don t n
e
ed
t
o be
pu t
into
s
et s.
E
cono
s
will
be di
stributed
d
uri
n g
th
e
simu
l
ation
,
so you c
a n
p
ut
th
em
in
a n
e
nve
lop
e
or co
n
t
ai n er to ma
ke
it
ea
sy t
o g
ive
them
ou
t .
6
. A
co
py
o
f
A
ct
i
v
i
t
y
1
0.5 a
nd A
cti
v
i
t y
1
0. 6
f
or eac
h
st
u
den
t
7.
A l
ar
ge
p
iece o
f p
a p
er
o
n
w
h ich
y
ou h
a v
e
writt
en
E
CON O
F
A
C
T
ORY
8.
M
a s
kin
g
t
ap e o
r s
tr
a i
gh t p
ins
so t
he
s
t u
d
en t s ca
n w
e
ar
th
e
B
u
si
n e
ss
Bad
ge
s
9.
(Op
tional)
Tw
o s
ma ll
pri
zes
PROCEDURE
1.
E
xpl ain to
th
e
s
tuden
ts that
peo
ple
pa
rtic
i
pa te in
t
he
eco
no my i
n a v
a r
ie
t y
o
f w
a
y
s
.
P
e
o
pl
e m
ake
d
ec
i i
on
s
a
s c
ons u me r s w
h
en
the
y
p
u r
ch
a
se
g
oods
and
se
rvices
.
T
h ey
m
a ke
d
ecisio n s as
pr
odu cer s
when
t
hey
pr
ovide
hum
an
and
n
atural
r
esourc
es
th
e
y
ow
n
to
b
u
i
ne
ss
e
s
or w
hen
their
s
a
v
i
n
gs
a
llow
b
u
si
nesse
s
to
borr
o
w
t
o
m
a
k
e
i
n
v
est
m
en
ts
in
c
apit al
go
od
s.
T
h
e
y
a
l
s
o m
a
k
e
decisions
a
s
c
it
iz
en
s
,
e
s
p
e
c
i
a
ll
y
a
s v
ot
e
r
s,
t
ha
t
in
flu
e
nce
the
e
c
o
n
o
mic d
e
c
i
s
ion s
m
ad e c
olle c
tiv
el
y
in
t
he
ec
ono my.
2
.
E
xp
l
a i
n
t
ha
t t
h e
class
will
e
ngag
e
in
a
sim
ul
ati
on
c
alled
"E
co
n ol
a
n
d"
to l
earn
a
bou t
the
in
ter
r ela tion
sh
ips
between
h
ou s
eh
olds
an
d
businesses
in
a
m
ark
et
economy
.
3.
G
ive
each
stude
nt
a
copy o
f Ac
tivi
ty 1
0.1.
In
st
ru
ct
the
s
t
udents
t
o
r
e
a
d "O
ver
vi
ew."
Re
vi
e
w
t
h e r
ole o
f h
ous ehol ds, t
h e t
hr
ee
ca
tego r ies
o
f
pr
odu
ct
ive
r
es
our
ces a
n d
t
he
r
oles o
f b
usi n ess
fir
ms. Ans
wer
a
ny qu
es
tion
s
ab
out
t
h e
c
once p
ts
in
volved.
4
.
Di
vide
th
e
clas
s
in
half. St
u de nt s
i
n
on
e
g
r ou p
will
r
epr
e
sent
bu
sin
ess
firm
s
an
d
stu
den
ts
i
n
th
e o
t he r
g
ro up
w
ill r
epr
es
ent
h
ous
eh
olds.
Giv
e
each
busi
ness
fir
m
10
$100
bill
s
a
nd
a
Busin
ess
B
adg
e
t
o
we
ar
during
t
he
s
imu la t ion .
Ha
ve
bu
sin
ess
firms
ta
pe
or
pin
their
b
adg
es
t
o
th
eir
shirts
to m
a
k
e
them
more
r
ecogniz
a
bl
e
to
the
hous
eholds
.
G
iv
e e
ach
hou
s
ehold
a
se
t
of 1
5
resourc
es
card
s.
E
C
ONO:\
lI
C
S I
N ACTION
e N
' •
A
T
I
O
:-':
AL
CO UN CIL
ON EC
ONOMIC
ED
U
CA
TION ,
N
EW Y
ORK.
N
.
Y.
6
T
H E
CIR
CULAR FL
O
W
OF ECO
N
OM
I
C
ACTIVITY -
L
E S
S
O N
1
0
5.
Have
t
h
e
st
u
dents
read
th
e
instructions
for
the
"
E
con ola
n
d"
sim
ulation
on
the
sec
o
n
d
pa
g
e of
Activity
10
.1.
M
ake
sure
households
know
they
mu
st
sell
t
heir
re
so
urces
cards
for
money
and
then
use
the
money
to
buy
Econo
s
,
w
h ich
represent
products.
Make
sure
businesses
know
they
must
pay
money
for
the
resources
cards
and
then
sell
Econos
to
the
households.
6
.
Tape
the
E
CO
NO
F
A
C
T
O
R
Y
sign
in
the
place
where
firms
will
exchange
three
cards
- one
N
a t ur al
R
esour ces , one Reso
u
r
ces
and
one
C
a
pit a l Goods
- for
one
Econo.
Remind
the
students
that
Econos
represent
goods
and
services
busi
nesses
sell
to
househol
d
s. Y
ou or a
student
you
select
will s
t
aff
the
E
con o
Factory.
7.
R
vi
e
w
the
instruct
ions
for
the
simulation
and
a
n
s we
r
any
questions.
Re
m
ind
the
stu
d
en
t
s
that
th
e
goal
of
each
business
fi
rm
is
to
end
the
simulation
w
it h as
much
money
a
s
po
ssible.
B
u
s
i
ness
e
s
must
pay
m
o
ney
to
obt
a in
th
e p
r odu
c
tiv
e
-r
e
sou
r
ces
car
d
s
.
The
goal of e
a
ch
household
is to
end
wi
t
h
a
s
many
E
conos
as
possible.
H
ou seh olds mu
s
t
s
e
ll
th
eir
re
so
ur ces
c
a
r
ds
for mon
ey,
and
they
ma
y b
uy
only
Econos
with
m
oney.
8.
C
o
nduct
the
s
im ula tion.
Al
low
the
stu
d
en
t
s
up to 20
minutes
to
engage
in
their
exchange
activities
(they
usually
finish
in
15
minut
es
o
r
less).
When
you
obser
ve
that
about
half
the
hou
sehold
s
have
sold
all
their
resour
c
s
car
ds
,
announce
that
exchanges
will
end
in five
minutes.
Students
must
know
in
advance
when
the
e
x
ch a nge
period
w
i
ll
end
so
they
can
plan
for
the
orderl
y s
a
le of
their
remaining
pro
ductive
resources
and
Econos.
(Some
households
might
try
to
circumvent
the
business
process
by
bringing
resources
cards
directly
to
the
Econo
Factory.
Expla
in
that
they
lack
a
Business
Badge
and
therefore
cannot
produce
Econos.
If
a s
t u dent is
staffing
the
Econo
Factory,
make
su
re
the
student
is
aware
of
this
possibility
and
knows
how to
respond.
)
9. After
the
simulation
ends
and
the
stu
dents
have
returne
d
to
their
seats,
ask
them
how
well
they
d
id
:
Which
household
obtained
the
most
goods
and
services
(Econos)
during
t
h e
simulation?
Which
business
firm
now
h
as
the
most
money?
( O
p
ti
o n
a
l)
Pr
o
vi d
e
a
s
m
all
prize
to
the
househ
old
with
the
most
E
conos
and
to
the
business
with
the
most
money.
1
0
.
Project
Visual
10.1.
E
x
pla in
that
the
dia
gram
shows
the
circul
ar
flow of
productive
resources
(factors
of
production),
goods
and
se
r
vices
(
products)
and
money
pay
ments.
A
sk
the
s
t udent s to'
describe
how
h
ouseholds
and
busine
sses
are
in
terdepen
dent.
A
s
k
t
h
em
t
o
r
e
l
a
te
the
c
ir cul
ar
-flow
diagram
on
V
is
u
a
l 10
.
1
to t
h
e "
E
c
onola n d"
simu
l
a
tion
.
Students
who
r
ep
rese n ted
businesses
acquired
produc
t
ive
resour
ces
(human-resources
,
natural
r
es
ources
an
d
capital
-goods
cards
)
from
households
through
the
Resour
ce
Marke
t
in
excha
n
ge
for
money-in
come
p
ay m e n ts .
Busin
es
ses
exchan
ged
res
ou r ce s
car
d s
for
Econ
os,
which
rep
r
esent
good
s
and
se
r
vic
es
.
Businesses
s
ol d E
con
os
to
hou
seholds
through
th
e
Product
Ma.rhet
i
n
ex
change
f
o r
money
payments
.
11.
D
is tr ib ute a copy
o
f Acti
vi
t
y
10.5 to
each
st
ud
en t.
T
e
ll
th
e
stud
en
t
s
to
an
s
w
e
r
Q
u
est i
o
n
s
1
,
2
and
3 u
sing
the
i
n
forma
tion
they
gain
ed
fro
m
the
simula
tion
and
from
V
i
s
ual
10
.1
(
r
eprod
u
ced
at
the
top of
A
c
tivit
y
10.5).
D
iscuss t
heir
answ
er
to
the
qu
esti
ons.
1. Accordin
g
to
the
d
ia
g
r a m , in
which
markets
do
bu
sine
sse s
g
i
ve
money-income
payments
to
household
s
i
n
ex
ch a nge for
their
produ
ct
i
ve
reso
u
rces
'?
Resourc
e
markets
2
. I
n
which
markets
d
o
households
give
money
payments
to bu
sinesses
in
exchange
for goods
and
services?
P
ro d u c t
mar/lets
3
. W
h a t
did
E
con os
represent
in
the
simulation?
Goo
d s a
n d s
er
vi
ces b
u
si
nesses
sell
to
ho
u
s
eh
ol
d s
EC ONmlICS I N A CTION. C N A TIONAL C OUNCIL ON sc o x o x nc I m U CA TI o N. •
' EW v ou « , NY .
L
E
SS
ON 1
0
T
H
E
C
IRCU
A
R
F
L
O
W
O
F E
C
O
N
O
M
IC
A
C
TI
VITY
12
.
P
roject Vi
su
al
10.
2,
and
as
k
th
e
stud
ent
s
t
o
c
ompare
thi
s
di
agr
am w
ith
th
e
di
a gr
am
on
Activity
10.5.
D
i
s
cu s
s
a
ll
the
way
s
th
e
circular-flow
mod
el
w
as a
l
te r ed to
incorp
o
rate
the
governm
ent
s
e
ctor
a
n d
suggest
that
even
mor
e c
ha
nge
s
woul
d h
ave to b
e
m
ade
to
the
c
h a r t if w
e
w
e
r
e
to inco
r
po
r
at e
int
ernati
on al-t r ad e
r
ela
tionships.
1
3
.
Distribut
e
A
ctivity
10
.
6 a
n d n
ot e
th
at
th
e
ci
rc ul ar -flow d
ia
gram
fr
om Vi
sual
10
.2
i
s
re
p
r odu ced
a
t
the
t
op.
I
ns
t r
u
ct
th
e s
t u
dents
to
answ
er
Q
u
e
sti
o
n
s
1
,
2, 3
a
n d 4
using
the
inform
ati
on o
n
Ac
t
iv
it
y
10
.6
.
D
iscu ss
the
an
sw
ers
. 1.
G
ive
an
e
xa m pl
e
of a
produ
t
ive
r
es
ource
that
h
ou
s
eh
old
s
se
ll to g
o
v
ern
m
ent
.
Ansu
ers
uiil
l
oary
and
includ
e
teachers
t
oor
leing
in
public
sc
hoo
ls.
.
2
.
Gi
v
e a
n
e
xa
m
pl
e
o
f
a
go
o
d
o
r s
e
r
v
i
c
e
th
at
bu
sin
esses se
ll t
o gov
e
r
n men t .
Answers
will
va
ry
and
includ
e
c
om
pu
t
er
s, c
om m u n i ca t io n s
s
a te ll ite s,
acc
ountin
g
se
ru ic es
and
ai
rpl
an
es .
.
3.
G
ive an
e
xa
mple
o
f
a
goo
d
or s
er
vi
ce
that
go
v
e
rnm
ent
p
ro
vid
es
to
househo
l
d
s
in
ex
ch an ge
fo
r
mo
ney
p
ayment
s,
m
ai
nly
ta
xes .
Answer
s
will
v
a ry
and
include
s
c h ool
s
.
p
oli
ce
and
l
i re
departments
,
road
s
and
librari
es
.
4.
G
ive
a
n
e
xa
m ple
o
f a
go
od or
ser
v
ice
that
gov
ernm
en
t
pr
ovides
to
busin
es
se
i
n
exchange
f
or mo
ney
p
a yme nts .
An
swers
w
ill
vary
and
in
cl
u d e
po
li ce,
hig
h
way
s,
air-tr
a
ffic
control
se
rvic
es
and
disast
er
a
ss is
ta
n ce.
No
t
e :
Transf
er
p
a
ym
en ts
are
gov
ern
ment
p
aym
ent
s
f
or
whi
ch
r
ecipi
ent
s
d
o
n
ot cu
r
r
entl
y
p
erf
or m p
r oduc tive
se
rv ices.
Signifi
c
ant
t
ra
ns fer
p
ay
m
e
n t
s
in th
e
United
St
a t es
t
oda
y i
n
cl
u de S
ocia l
Security
b
en
efits
,
Me
dicar e
and
M
edi c
aid
,
government-empl
oyee
retirement
b
ene
fit s
,
unemploym
ent
c
ompensation
and
publi
c
assistance
su
ch as
f
ood
stamps.
C LOSURE
E
x
p
la
in t
o
th
e cl
ass
t
hat
th
e
U.S
. eco
no my i
s
o
rg
a
ni zed
around
a
syste
m
of
privat
e
mark
et
s
in
whi
ch
prices
for
goo
ds
a
n d s
ervice
s
are
d
et
ermined
by
the
int
er
acti on o
f
buyers
and
se
lle
rs
.
Th
i
s
f
or m of
eco
no mic
a
cti vi
t
y
creates
a
t
yp e
of
interdepend
en ce
b
etw
een
people
in
hous
e
hol
ds
and
p
eople i
n
bu
sin esses.
Ask:
1.
H
ow
d
o i
n divid
ua
ls
a
n d
fa
mi
lies
in h
ou
s e
h
old s
d
ep
end
o
n p
eopl e
in bu
sin
esses
?
People
i
n
h
ou s
eho
lds
b
uy
t
h e
goods
and
s
ervi
ces
t
hey
d
es i r e
fr
om
bus
iness
es
.
T
h ey
sell
t
h e p
roductive
r
es ou r c
e
s
t
h
e
y OWIl
to
businesses
to
ear
n i
n com e.
2
.
H
o
w do
busin
ess es d
epe
n d on in
d
i
v
iduals
a
n
d
famili
es
in h
ou seho ld s?
Business
es
sell
goods
and
se
rvices
to
households
to
earn
re
venu
e
and
m
ak
e a
prof
it
.
They
p
u r
chase
prod
uct
i
ve
resource
s
fr
om
househo
lds
to
produc
e
th
e
goods
and
ser
vi ces
consumers
d
e
sire.
3
.
W
h a t is
th
e
r
ole o
f
go
v
e
rnm
e
n t
i
n
t
he
c
i
r
cul
a
r fl
ow
of
ec
ono mic
a
ct
i
v
i
ty ?
Go
ve
rnment
taxes
businesse
s
and
h
ou seh
old
s t
o
pay
f
o r
t
h e
p
r od u c
ti
v
e
resourc
es
i
t
uses
t
o
provide
cer
tain
hin
d s
of
goods
a
nd
s
er
vice
s
t
o
house
h
olds
and
bus
inesses
. sc osox nos I N A CTION, C N ATI ONAL CO UNCI L O N
E
DUCATION , N EW YORK. K Y. 88
T
HE
C
m CULAR FL
OW O
F
E
CON
O
MI
C ACT
IVITY
-
L
E
SSON 10
VI
SUAL
10.
1
T
HE C
IR
CULAR
F
LO
W OF
PR
ODUC
T
IVE
RE
S
OURCE
S,
G
OODS AN
D
S
E
RVI
CES
AN
D
MON
EY P
AYM
E
N
T
S Money
Payments
Go
o
ds
a
n d S
ervi
c e s
PRODUCT ARKETS USEHOLDS
RESOURC MARKETS Pr
o d u c t ive
R
e
s o u r c e s
M
o
n ey-I n co m e
Payments
...
-........ E
CONO
MI
CS
IN
ACTI
O N
,
C
N
ATIONAL
C
OUNC IL
ON E
C
ONOMI
C
EDU
CA
TION ,
NEW YO
RK,
N
.V.
8
9
Less
on
1
0 -
The
Circular
F
low
of
Economic
Activity IN ODUCTION
E
c o
no
m
i
cs
The circular
fl
ow o
f
e
con om ic
acti
vity
i
s a s
im
plifi
ed
macr
oecon omi c
m
odel
o
f
th
e
ba
sic e
co
n
omi
c
relati
on
ships
in
a
mark
et
ec
onom
y.
Thi
s
mod
el
gi
ves
th
e s
t u de
nt
s
a
n ov
ervi
ew o
f h
ow
h
ous
e
holds,
busin
es ses a
n d g
ov
ernm
ent
inter
a
ct
in d
ifferent
ma
r k
ets
by
e
x
ch a n ging
g
oods
and
s
ervic
es,
pr
oductiv
e
re
sour
ces
(als
o
known
as inputs
o
r
th
e factors
of
produ
cti on)
and
mo
n ey
.
Reaso
ning
P
e
ople r
esp
ond
t
o
incentiv
es
.
H
o
u
s
eh
o
lds h
ave
incent
i
ves
to pr
ovide
r
e
so
ur c
e
s
to
busin
es ses
to
r
e
c
e
ive
inc
ome
in r
etu
r
n
.
T
h
ey
then
ha
v
e
in
c
e
n
t
i
v
e
s
t
o
use
t
h
ei
r
incom
e
to
purch
as e
g
o
o
d
s a
n
d s
e
r
v
i
ce
s t
o s
a
t
i
sf
y
th
ei
r
wants.
B
u
s in
es s
es h
av
e
in
ce
n
t
i
ve
s
t
o ea
rn
pr
ofi
ts
a
n d
,
theref
or e,
to
produ
ce
t
he g
o
ods
a
n
d
s
e
r
v
ices
that
consum
er s
w
a
n t.
T
o
produc
e
g
o
ods
and
s
ervic
es,
bu
s
iness
es
n
e
ed
to
purc
h
a
se
re
s
o
ur
c
e
s
fro
m ho
u
s
eholds
. T
h
e c
ir cul ar -flow
mod
el
and
th
e
simula
tion
in
thi
s
l
esson
d
em
on
str
ate
th
es e
imp
o
r
t a
nt
r
elati
on
s
h
ip
s
.
CONCEPTS
C
ir
cula r flow of good
s,
service
s,
productive
r
esources
and
money
payments
In
ter depen den
c
e
Pr
oductive r
e
sourc
es
(
n a t
ur
a l,
human
and
capital)
R
esou
rc
e
payment
s
(wages
and
salaries,
r
ent,
int
er
est,
profit) CONTENT STA NDARDS 7.
Ma
r
kets
exist
when
buyers
and
s
eller s
intera
c
t
.
T
h is
interaction
determines
m
ar
ket
p
ri c
e
s
and
ther
eby a
lloca te s s
carce
go
o
ds
and
s
erv ices . 16
.
T
h
er e is
an
ec
onomic rol
e
for
government
t
o
play
in a
mark
et ec
onomy
w
h
e
n
e
v
e
r
th
e
benefits
of a
g
ove
rn
men t pol
ic
y
o
u twe igh
its
c
osts
.
G
ove
r n m
e
n
t
s
often
provide
for
na
ti
o
n al
d
ef
e
n s
e
,
add
res
s
e
nvir on men ta l
conc
er
ns
,
d
e
fi
n e
and
protect
prop
erty
r
i
gh
t
s
,
an
d a
tt
e
m pt t
o
m
a k
e
m
arket
s
mor
e
c
o
mp
et
i
ti
v
e.
M
ost
governm
e
nt
policie
s
al
so
redi
s
t
ribut
e
income. 18.
A
nation's
ov
erall
level
s
of
income,
emp
loy
m
ent
a
n d
pri
ces
ar
e
d
e
t
e
rmined
b
y
the
intera
c
t
ion
of sp
ending
and
product
ion
deci
sion
s
made
by all
hou
sehold
s,
firms
,
governm
ent
ag
encie
s
and
other
s
in
the
e
conomy.
OBJECT IV ES S
t u d
e
n
t
s
will 1.
Identify
and
de
s
cribe
t
h e
three
t
ypes
of
productive
resource
s
(input
s)
and
t
h e
kind
of
income
e
ac h
resour
ce
earn
s. 2
.
Analyz
e
the
e
conomic
relationship
s
between
hou
sehold
s
and
busines
ses
in a
market
e
conomy. 3
.
U
se
a ci
r
c
ul
ar-flow
di
a
gram
to
illustrat
e
the
e
conomic
relation
ships
among
house
hold
s,
busines
s es
and
government
. EC ON
<1:I
ll
CS
I
N
A
CT ION
, ' Q
NA
TIONAL
CO
L:-:C
IL E
DU
CA
T
I
ON
,
NEW Y
OR
K,
NY
S
f
.
L
E S
SON
1
0
- T
H
E C
IR CU
LAR
F
LO
W
O
F
E
CONO
M
IC A
CTIVITY
LE SSON DES CRIPTION
In
th
is
l
esson ,
th
e
s
t ude
n
ts
read
a
bout
mar
ket
i
n
t e
r
a cti on s
and
par
t
icipa
te
i
n
a si
m ula
tion
.
"
E
c
on
o
la n
d
" i
nvolv
es
tr
a
nsa
ctio ns
betwe
en
bu
sinesses
and
h
ou
s
eh olds
i
n tv 0
kinds
o
f pr
oduct
ma
rkets
a
nd
r
es
our
c
e (or
in
put)
mar
ke t s.
They
d
i
scus
s
h
ow
th
e g
over
n
m
e
nt
f
it s in
to
t
h
is mode
l
a
nd
tr
a n
s
la te
th
e
i
r
c
o
ncl
usions
i
nt o a
c
ir
cula
r -
flow
d
i
a
g
r
a
m
.
TIME
REQUIRED
7
fj
minu t es: 45 mi
nu te
s
to
c
o
n
d
uc
t
a
n
d
discuss
t
h
e s
i
mu la
t
io
n
a
nd
3
0 m
i
nut
es
t
o c
omp le te
.
c
t
iv
i
t
ies 1
0.5
and
10.
6
MATERIALS
Not
e :
Pr
e
par
e
m
ater
i
al s
f
o
r
t
h
e
s
i
mu
l
a
ti o
n
b
efo
r e cla
ss,
m
ainl
y c
utti
n
g
ap
a
rt
a
c
t
iv
i
t
y
sh
e
ets
a
n
d
c
r
e
at
in
g
s
e
t
s
of m
a
t
e
r
i
a
l
s
f
o
r
t
h
e
s
t
udents.
I
f
po
ssi
bl
e
, l
ami
na
te
b
a
d
ge
s
,
c
a
r
d
s
a
n
d m
on ey
t
o u
s
e
i
n
m
ul
tip
le
cl
a ss es .
I
.
V
i
su
a
l
s 10
.1
a
n
d
1
0
.
2
2.
A
co
py
o
f
A
c
t
i
vi
t
y
10.1
(
t
w
o
pages)
f
or
e
a ch
s
tud
ent
3
.
E
n ou
gh
co
pi es
of
A
ct ivity
1
0
.
2
(one
B
u s
i
n
e
ss
B
a d
ge
a
n
d
1
0
$
1
00 b
ill
s)
f
o
r h
alf
t
h
e
s
t ud
ent
s
in
t
h
e cl
a
s
s
.
T
h
e se
st
ude
nts
will
r
epr
ese
nt
bu
s
i
n
e
s
s
e
s
.
4.
E
n
ou
g
h co
pies
o
f
Act
ivity 1
0. 3 (
five
H
u
m
a
n R
es
ourc
e
s ca
r ds,
fi
v
e
N
a
t u r al
R
eso
u r
ces
' c
ar
d
s
a
n
d
fi
v
e
C
a p
it
a
l
G
oo
d
s
ca
rds)
f
or
th
e
r
e
st
of t
he
s
t u de n
ts
i
n
th
e
cl
as s,
wh
o w
ill
r
epr
esen t
hou
seh
olds. Mi
x
t
h e
se
t s
u
p
so
t
h e
c
ard
s a
re
n
ot
di
st
r ib
u
t ed e
q
ua
ll
y
: M
a
k
e o
ne
set
w
it
h
15
N
atural
Re
s
our
ces ca
r ds, for ex
ampl
e, an
d
a
n
othe
r wi
th
10
H
u ma n
R
eso
u r
ce
s
c
ar ds
a
n d fi
ve Ca
pit
al
G
oo
d
s ca
r ds .
Ju
st ma
ke
s
u re
e
ach s
et
i
n
cl
u d
es
a
tot
al
of
1
5
ca
r ds .
5
.
En
ough co
pies
o
f Activ
i
ty
10.4
(
10 E
c
on o
ca
r ds) f
or
half
th
e
stud
ents
i
n
t
h e
clas
s.
You will
to
c
u t the
se
c
a
r
ds
a
p
art,
b
u
t
don t n
e
ed
t
o be
pu t
into
s
et s.
E
cono
s
will
be di
stributed
d
uri
n g
th
e
simu
l
ation
,
so you c
a n
p
ut
th
em
in
a n
e
nve
lop
e
or co
n
t
ai n er to ma
ke
it
ea
sy t
o g
ive
them
ou
t .
6
. A
co
py
o
f
A
ct
i
v
i
t
y
1
0.5 a
nd A
cti
v
i
t y
1
0. 6
f
or eac
h
st
u
den
t
7.
A l
ar
ge
p
iece o
f p
a p
er
o
n
w
h ich
y
ou h
a v
e
writt
en
E
CON O
F
A
C
T
ORY
8.
M
a s
kin
g
t
ap e o
r s
tr
a i
gh t p
ins
so t
he
s
t u
d
en t s ca
n w
e
ar
th
e
B
u
si
n e
ss
Bad
ge
s
9.
(Op
tional)
Tw
o s
ma ll
pri
zes
PROCEDURE
1.
E
xpl ain to
th
e
s
tuden
ts that
peo
ple
pa
rtic
i
pa te in
t
he
eco
no my i
n a v
a r
ie
t y
o
f w
a
y
s
.
P
e
o
pl
e m
ake
d
ec
i i
on
s
a
s c
ons u me r s w
h
en
the
y
p
u r
ch
a
se
g
oods
and
se
rvices
.
T
h ey
m
a ke
d
ecisio n s as
pr
odu cer s
when
t
hey
pr
ovide
hum
an
and
n
atural
r
esourc
es
th
e
y
ow
n
to
b
u
i
ne
ss
e
s
or w
hen
their
s
a
v
i
n
gs
a
llow
b
u
si
nesse
s
to
borr
o
w
t
o
m
a
k
e
i
n
v
est
m
en
ts
in
c
apit al
go
od
s.
T
h
e
y
a
l
s
o m
a
k
e
decisions
a
s
c
it
iz
en
s
,
e
s
p
e
c
i
a
ll
y
a
s v
ot
e
r
s,
t
ha
t
in
flu
e
nce
the
e
c
o
n
o
mic d
e
c
i
s
ion s
m
ad e c
olle c
tiv
el
y
in
t
he
ec
ono my.
2
.
E
xp
l
a i
n
t
ha
t t
h e
class
will
e
ngag
e
in
a
sim
ul
ati
on
c
alled
"E
co
n ol
a
n
d"
to l
earn
a
bou t
the
in
ter
r ela tion
sh
ips
between
h
ou s
eh
olds
an
d
businesses
in
a
m
ark
et
economy
.
3.
G
ive
each
stude
nt
a
copy o
f Ac
tivi
ty 1
0.1.
In
st
ru
ct
the
s
t
udents
t
o
r
e
a
d "O
ver
vi
ew."
Re
vi
e
w
t
h e r
ole o
f h
ous ehol ds, t
h e t
hr
ee
ca
tego r ies
o
f
pr
odu
ct
ive
r
es
our
ces a
n d
t
he
r
oles o
f b
usi n ess
fir
ms. Ans
wer
a
ny qu
es
tion
s
ab
out
t
h e
c
once p
ts
in
volved.
4
.
Di
vide
th
e
clas
s
in
half. St
u de nt s
i
n
on
e
g
r ou p
will
r
epr
e
sent
bu
sin
ess
firm
s
an
d
stu
den
ts
i
n
th
e o
t he r
g
ro up
w
ill r
epr
es
ent
h
ous
eh
olds.
Giv
e
each
busi
ness
fir
m
10
$100
bill
s
a
nd
a
Busin
ess
B
adg
e
t
o
we
ar
during
t
he
s
imu la t ion .
Ha
ve
bu
sin
ess
firms
ta
pe
or
pin
their
b
adg
es
t
o
th
eir
shirts
to m
a
k
e
them
more
r
ecogniz
a
bl
e
to
the
hous
eholds
.
G
iv
e e
ach
hou
s
ehold
a
se
t
of 1
5
resourc
es
card
s.
E
C
ONO:\
lI
C
S I
N ACTION
e N '
•
A
T
I
O
:-':
AL CO
UN CIL
ON EC
ONOMIC
ED
U
CA TION
,
N
EW Y
ORK.
N
.
Y. 6
T
H E
CIR
CULAR FL
O
W
OF ECO
N
OM
I
C
ACTIVITY -
L
E S
S
O N
1
0
5.
Have
t
h
e
st
u
dents
read
th
e
instructions
for
the
"
E
con ola
n
d"
sim
ulation
on
the
sec
o
n
d
pa
g
e of
Activity
10
.1.
M
ake
sure
households
know
they
mu
st
sell
t
heir
re
so
urces
cards
for
money
and
then
use
the
money
to
buy
Econo
s
,
w
h ich
represent
products.
Make
sure
businesses
know
they
must
pay
money
for
the
resources
cards
and
then
sell
Econos
to
the
households.
6
.
Tape
the
E
CO
NO
F
A
C
T
O
R
Y
sign
in
the
place
where
firms
will
exchange
three
cards
- one
N
a t ur al
R
esour ces , one Reso
u
r
ces
and
one
C
a
pit a l Goods
- for
one
Econo.
Remind
the
students
that
Econos
represent
goods
and
services
busi
nesses
sell
to
househol
d
s. Y
ou or a
student
you
select
will s
t
aff
the
E
con o
Factory.
7.
R
vi
e
w
the
instruct
ions
for
the
simulation
and
a
n
s we
r
any
questions.
Re
m
ind
the
stu
d
en
t
s
that
th
e
goal
of
each
business
fi
rm
is
to
end
the
simulation
w
it h as
much
money
a
s
po
ssible.
B
u
s
i
ness
e
s
must
pay
m
o
ney
to
obt
a in
th
e p
r odu
c
tiv
e
-r
e
sou
r
ces
car
d
s
.
The
goal of e
a
ch
household
is to
end
wi
t
h
a
s
many
E
conos
as
possible.
H
ou seh olds mu
s
t
s
e
ll
th
eir
re
so
ur ces
c
a
r
ds
for mon
ey,
and
they
ma
y b
uy
only
Econos
with
m
oney.
8.
C
o
nduct
the
s
im ula tion.
Al
low
the
stu
d
en
t
s
up to 20
minutes
to
engage
in
their
exchange
activities
(they
usually
finish
in
15
minut
es
o
r
less).
When
you
obser
ve
that
about
half
the
hou
sehold
s
have
sold
all
their
resour
c
s
car
ds
,
announce
that
exchanges
will
end
in five
minutes.
Students
must
know
in
advance
when
the
e
x
ch a nge
period
w
i
ll
end
so
they
can
plan
for
the
orderl
y s
a
le of
their
remaining
pro
ductive
resources
and
Econos.
(Some
households
might
try
to
circumvent
the
business
process
by
bringing
resources
cards
directly
to
the
Econo
Factory.
Expla
in
that
they
lack
a
Business
Badge
and
therefore
cannot
produce
Econos.
If
a s
t u dent is
staffing
the
Econo
Factory,
make
su
re
the
student
is
aware
of
this
possibility
and
knows
how to
respond.
)
9. After
the
simulation
ends
and
the
stu
dents
have
returne
d
to
their
seats,
ask
them
how
well
they
d
id
:
Which
household
obtained
the
most
goods
and
services
(Econos)
during
t
h e
simulation?
Which
business
firm
now
h
as
the
most
money?
( O
p
ti
o n
a
l)
Pr
o
vi d
e
a
s
m
all
prize
to
the
househ
old
with
the
most
E
conos
and
to
the
business
with
the
most
money.
1
0
.
Project
Visual
10.1.
E
x
pla in
that
the
dia
gram
shows
the
circul
ar
flow of
productive
resources
(factors
of
production),
goods
and
se
r
vices
(
products)
and
money
pay
ments.
A
sk
the
s
t udent s to'
describe
how
h
ouseholds
and
busine
sses
are
in
terdepen
dent.
A
s
k
t
h
em
t
o
r
e
l
a
te
the
c
ir cul
ar
-flow
diagram
on
V
is
u
a
l 10
.
1
to t
h
e "
E
c
onola n d"
simu
l
a
tion
.
Students
who
r
ep
rese n ted
businesses
acquired
produc
t
ive
resour
ces
(human-resources
,
natural
r
es
ources
an
d
capital
-goods
cards
)
from
households
through
the
Resour
ce
Marke
t
in
excha
n
ge
for
money-in
come
p
ay m e n ts .
Busin
es
ses
exchan
ged
res
ou r ce s
car
d s
for
Econ
os,
which
rep
r
esent
good
s
and
se
r
vic
es
.
Businesses
s
ol d E
con
os
to
hou
seholds
through
th
e
Product
Ma.rhet
i
n
ex
change
f
o r
money
payments
.
11.
D
is tr ib ute a copy
o
f Acti
vi
t
y
10.5 to
each
st
ud
en t.
T
e
ll
th
e
stud
en
t
s
to
an
s
w
e
r
Q
u
est i
o
n
s
1
,
2
and
3 u
sing
the
i
n
forma
tion
they
gain
ed
fro
m
the
simula
tion
and
from
V
i
s
ual
10
.1
(
r
eprod
u
ced
at
the
top of
A
c
tivit
y
10.5).
D
iscuss t
heir
answ
er
to
the
qu
esti
ons.
1. Accordin
g
to
the
d
ia
g
r a m , in
which
markets
do
bu
sine
sse s
g
i
ve
money-income
payments
to
household
s
i
n
ex
ch a nge for
their
produ
ct
i
ve
reso
u
rces
'?
Resourc
e
markets
2
. I
n
which
markets
d
o
households
give
money
payments
to bu
sinesses
in
exchange
for goods
and
services?
P
ro d u c t
mar/lets
3
. W
h a t
did
E
con os
represent
in
the
simulation?
Goo
d s a
n d s
er
vi
ces b
u
si
nesses
sell
to
ho
u
s
eh
ol
d s
EC ONmlICS I N A CTION. C N A TIONAL C OUNCIL ON sc
o x o x nc I m U CA TI o N. • ' EW v ou « , NY .
L
E
SS
ON 1
0
T
H
E
C
IRCU
A
R
F
L
O
W
O
F E
C
O
N
O
M
IC
A
C
TI
VITY
12
.
P
roject Vi
su
al
10.
2,
and
as
k
th
e
stud
ent
s
t
o
c
ompare
thi
s
di
agr
am w
ith
th
e
di
a gr
am
on
Activity
10.5.
D
i
s
cu s
s
a
ll
the
way
s
th
e
circular-flow
mod
el
w
as a
l
te r ed to
incorp
o
rate
the
governm
ent
s
e
ctor
a
n d
suggest
that
even
mor
e c
ha
nge
s
woul
d h
ave to b
e
m
ade
to
the
c
h a r t if w
e
w
e
r
e
to inco
r
po
r
at e
int
ernati
on al-t r ad e
r
ela
tionships.
1
3
.
Distribut
e
A
ctivity
10
.
6 a
n d n
ot e
th
at
th
e
ci
rc ul ar -flow d
ia
gram
fr
om Vi
sual
10
.2
i
s
re
p
r odu ced
a
t
the
t
op.
I
ns
t r
u
ct
th
e s
t u
dents
to
answ
er
Q
u
e
sti
o
n
s
1
,
2, 3
a
n d 4
using
the
inform
ati
on o
n
Ac
t
iv
it
y
10
.6
.
D
iscu ss
the
an
sw
ers
. 1.
G
ive
an
e
xa m pl
e
of a
produ
t
ive
r
es
ource
that
h
ou
s
eh
old
s
se
ll to g
o
v
ern
m
ent
.
Ansu
ers
uiil
l
oary
and
includ
e
teachers
t
oor
leing
in
public
sc
hoo
ls.
.
2
.
Gi
v
e a
n
e
xa
m
pl
e
o
f
a
go
o
d
o
r s
e
r
v
i
c
e
th
at
bu
sin
esses se
ll t
o gov
e
r
n men t .
Answers
will
va
ry
and
includ
e
c
om
pu
t
er
s, c
om m u n i ca t io n s
s
a te ll ite s,
acc
ountin
g
se
ru ic es
and
ai
rpl
an
es .
.
3.
G
ive an
e
xa
mple
o
f
a
goo
d
or s
er
vi
ce
that
go
v
e
rnm
ent
p
ro
vid
es
to
househo
l
d
s
in
ex
ch an ge
fo
r
mo
ney
p
ayment
s,
m
ai
nly
ta
xes .
Answer
s
will
v
a ry
and
include
s
c h ool
s
.
p
oli
ce
and
l
i re
departments
,
road
s
and
librari
es
.
4.
G
ive
a
n
e
xa
m ple
o
f a
go
od or
ser
v
ice
that
gov
ernm
en
t
pr
ovides
to
busin
es
se
i
n
exchange
f
or mo
ney
p
a yme nts .
An
swers
w
ill
vary
and
in
cl
u d e
po
li ce,
hig
h
way
s,
air-tr
a
ffic
control
se
rvic
es
and
disast
er
a
ss is
ta
n ce.
No
t
e :
Transf
er
p
a
ym
en ts
are
gov
ern
ment
p
aym
ent
s
f
or
whi
ch
r
ecipi
ent
s
d
o
n
ot cu
r
r
entl
y
p
erf
or m p
r oduc tive
se
rv ices.
Signifi
c
ant
t
ra
ns fer
p
ay
m
e
n t
s
in th
e
United
St
a t es
t
oda
y i
n
cl
u de S
ocia l
Security
b
en
efits
,
Me
dicar e
and
M
edi c
aid
,
government-empl
oyee
retirement
b
ene
fit s
,
unemploym
ent
c
ompensation
and
publi
c
assistance
su
ch as
f
ood
stamps. C LOSURE
E
x
p
la
in t
o
th
e cl
ass
t
hat
th
e
U.S
. eco
no my i
s
o
rg
a
ni zed
around
a
syste
m
of
privat
e
mark
et
s
in
whi
ch
prices
for
goo
ds
a
n d s
ervice
s
are
d
et
ermined
by
the
int
er
acti on o
f
buyers
and
se
lle
rs
.
Th
i
s
f
or m of
eco
no mic
a
cti vi
t
y
creates
a
t
yp e
of
interdepend
en ce
b
etw
een
people
in
hous
e
hol
ds
and
p
eople i
n
bu
sin esses.
Ask: 1.
H
ow
d
o i
n divid
ua
ls
a
n d
fa
mi
lies
in h
ou
s e
h
old s
d
ep
end
o
n p
eopl e
in bu
sin
esses
?
People
i
n
h
ou s
eho
lds
b
uy
t
h e
goods
and
s
ervi
ces
t
hey
d
es i r e
fr
om
bus
iness
es
.
T
h ey
sell
t
h e p
roductive
r
es ou r c
e
s
t
h
e
y OWIl
to
businesses
to
ear
n i
n com e.
2
.
H
o
w do
busin
ess es d
epe
n d on in
d
i
v
iduals
a
n
d
famili
es
in h
ou seho ld s?
Business
es
sell
goods
and
se
rvices
to
households
to
earn
re
venu
e
and
m
ak
e a
prof
it
.
They
p
u r
chase
prod
uct
i
ve
resource
s
fr
om
househo
lds
to
produc
e
th
e
goods
and
ser
vi ces
consumers
d
e
sire.
3
.
W
h a t is
th
e
r
ole o
f
go
v
e
rnm
e
n t
i
n
t
he
c
i
r
cul
a
r fl
ow
of
ec
ono mic
a
ct
i
v
i
ty ?
Go
ve
rnment
taxes
businesse
s
and
h
ou seh
old
s t
o
pay
f
o r
t
h e
p
r od u c
ti
v
e
resourc
es
i
t
uses
t
o
provide
cer
tain
hin
d s
of
goods
a
nd
s
er
vice
s
t
o
house
h
olds
and
bus
inesses
. sc osox nos I N A CTION, C N ATI ONAL CO UNCI L O N
E
DUCATION , N EW YORK. K Y. 88
T
HE
C
m CULAR FL
OW O
F
E
CON
O
MI
C ACT
IVITY
-
L
E
SSON 10
VI
SUAL
10.
1
T
HE C
IR
CULAR
F
LO
W OF
PR
ODUC
T
IVE
RE
S
OURCE
S,
G
OODS AN
D
S
E
RVI
CES
AN
D
MON
EY P
AYM
E
N
T
S Money
Payments
Go
o
ds
a
n d S
ervi
c e s
PRODUCT ARKETS USEHOLDS
RESOURC MARKETS Pr
o d u c t ive
R
e
s o u r c e s
M
o
n ey-I n co m e
Payments
...
-........ E
CONO MI
CS
IN
ACTI
O
N
,
C
N ATIONAL
C
OUNC
IL
ON E
C
ONOMI
C EDU
CA
TION
,
NEW YO
RK,
N
.V.
8
9