Circular-Flow Diagram
What is a government "transfer payment"?
Money flowing from government directly to households in the form of social security, food stamps, and other.
What is included in the expanded circular-flow diagram?
Government
product markets
Households buy what they want from firms. Their payments are consumer spending. Consumer spending produces a flow of goods and services to households and a return flow of money to firms.
On the circular-flow diagram, in what markets do households offer factors of production in exchange for income?
Factor markets
Factor markets v. Product markets
Overall, households buy from firms in product markets, and firms buy from households in factor markets.
On the circular-flow diagram, in what markets do households exchange money for firms' goods and services?
Product markets
What are some examples of public goods and services?
Roads, schools, bridges, national defense, public parks
What are required payments to the government called?
Taxes - income tax and corporate tax
circular flow diagram
The circular-flow diagram is a simplified representation of the macroeconomy. It shows the flow of money, goods and services, and factors of production through an economy.
What does the circular-flow diagram illustrate, and what does it include?
The flows of money, factors of production, and goods and services moving between households and firms in an economy.
What is government spending?
The government's purchase of PUBLIC goods and services.
firm
an organization that produces goods and services for sale—and that employs members of households
household
consists of either an individual or a group of people who share their income.
factor markets
firms buy factors of production that they need to produce goods and services from households. In exchange, households earn income from wages rent, interest, and profit.
