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Understanding Circular Flow in Economics

Learn about the circular flow of income and expenditures in a country through National Accounts, Income and Product Accounts, and Circular Flow Diagrams. Explore how households, firms, product markets, and factor markets interact in this economic model.

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Understanding Circular Flow in Economics

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  1. AP Economics Mr. Bernstein Module 10: Circular Flow (p 102-106) September 23, 2013

  2. AP EconomicsMr. Bernstein The National Accounts • Produced by Department of Commerce • Income and Product Accounts • Measures flows and expenditures of a country • Equivalent of Income Statement for Corporation

  3. AP EconomicsMr. Bernstein Circular Flow Diagram

  4. AP EconomicsMr. Bernstein Circular Flow Diagram • Households and Firms • Product Market is the market for goods and services • Factor Markets are the markets for resources or inputs firms need to produce goods and services • Each has its own supply and demand

  5. AP EconomicsMr. Bernstein Expanded Circular Flow Diagram

  6. AP EconomicsMr. Bernstein Expanded Circular Flow Diagram • More complex • Households do not directly many sell factors of production to firms (other than labor) – financial markets intermediate • US government, other countries also included • Notice inflows = outflows for all markets or elements

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