Review: Circular flow

What is the circular flow model?

A visual representation of how money and resources flow between households and businesses in an economy.

Households provide what to businesses?

Labor, land, and capital to produce goods and services for the marketplace.

Businesses provide what to households?

Goods, services, and income in the form of wages and salaries.

True or false: Households only consume goods.

False, because households also provide factors of production to businesses.

Difference between goods and services?

Goods are tangible items, whereas services are intangible activities provided to consumers.

What flows from businesses to households?

Wages, dividends, and payments for the factors of production.

Fill in the blank: Households receive _____ for their labor.

income, which they then use to purchase goods and services.

What is the role of the government in the circular flow?

To regulate economic activity and provide public goods and services, influencing the flow.

True or false: There are no leakages in the circular flow model.

False, because savings, taxes, and imports can reduce the flow of money.

What are leakages in the circular flow?

Withdrawals from the economy like savings, taxes, and imports that decrease overall economic flow.

What is an injection in the circular flow?

Additions to the economy from investments, government spending, and exports that increase flow.

Businesses create _____ for households.

Employment opportunities that provide income and purchasing power.

True or false: The circular flow model only applies to a closed economy.

False, because it can also apply to open economies with international trade.

Describe the flow of money in the economy.

Money flows from households to businesses for goods and services and returns as income.