Introduction to Macroeconomics - Circular Flow Model

Front

What is the Circular Flow Model?

Back

A model that shows the relationship between sectors and markets in the economy.

Front

What are the four sectors in the Circular Flow Model?

Back

Household, Business, Government, Foreign.

Front

What is the role of the Household sector?

Back

Individuals or groups that own all factors of production/resources.

Front

What is the role of the Business sector?

Back

Private firms involved in the production of goods and services.

Front

What is the role of the Government sector?

Back

Local, state, and federal governments that provide public goods via tax revenue.

Front

What is the role of the Foreign sector?

Back

Households, businesses, and governments of other nations.

Front

What are the three types of markets in the Circular Flow Model?

Back

Product market, Factor market, Financial market.

Front

What happens in the Product market?

Back

Buyers and sellers meet to exchange final goods and services.

Front

What happens in the Factor market?

Back

Owners and producers meet to exchange factors of production.

Front

What happens in the Financial market?

Back

Household and business sectors gather to exchange financial capital.