The circular flow model illustrates how goods, services, and money flow in an economy from "summary" of Economics for Beginners by Andy Prentice,Lara Bryan
The circular flow model is a useful tool that helps us understand how goods, services, and money move through an economy. Imagine a big circle where goods and services are exchanged for money, which is then used to purchase more goods and services. This circular flow demonstrates the interconnectedness of different economic activities.
At the center of the circular flow model are households, which represent individuals and families who consume goods and services. These households spend money on products they need or want, such as food, clothing, and entertainment. This spending creates a demand for goods and services, which in turn drives production and economic activity.
On the other side of the circular flow model are businesses, which produce g...
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