The circular flow model in economics demonstrates how money and resources move through an economy. It shows the interaction between households and businesses in the goods and services market and the labor market.
In economics, the circular flow model illustrates how money and resources flow through an economy. It shows the interaction between households and businesses in two markets: the goods and services market and the labor market. In the goods and services market, businesses sell products to households, while households buy these products. In the labor market, households sell their labor to businesses in exchange for wages.
Key terms in the circular flow model include government, households, businesses, purchasing goods and services, taxing households, taxing businesses, and paying workers wages. The model helps us understand how different components of the economy are interdependent and rely on each other to meet their needs.