Circular Flow of Economic Activity

So far you have learned of three principal actors in the economic scheme: Consumers (households), Businesses and Government.

The Circular Flow Chart analyzes the exchange of income, goods and services that flow between these three actors. They present a "system", meaning that all the parts are interdependent and contribute to the function of a whole. If one part breaks down or comes under stress it can have a profound impact on the whole.

Common inputs between all three grounds include: Taxes, Labor, Purchases, Income, Goods and Services

Review these examples and plot accordingly on your chart (if you have not done so already).

Income Taxes - households and businesses pay these to the government

Labor - workers provided by the households go to businesses and government

Purchases - households buy goods/services from businesses, government also contracts for goods and services from businesses

Income - Businesses provide households with wages, government takes in income in the form of taxes from households and businesses.

Goods and Services - from iphones to fighter jets (from businesses), to social security to highways (from the government) these are exchanged between government and business