Circular Flow Model

Businesses ——> Resource Market

Costs

Resource Market ——> Businesses

Resources

Businesses ——> Product Market

Goods and Services

Product Market ——> Businesses

Revenue

Product Market ——> Households

Goods and Services

Households ——> Product Market

Consumption Expendicures

Households ——> Resource Market

Neutral Ability: Labor, Land, Capital, Entrepreneurship

Resource Market ——> Households

Interest Profit: Money, Income, Wages, Rent

Circular Flow Model

No government; Pure capitalism

Modified: Government’s 20% ——> Resource Market —→ Households

Government Spending

Modified: Households ——> Resource Market ——> Government’s 20%

Resources

Modified: Government’s 20% ——→ Product Market ——> Businesses

Revenue

Modified: Businesses ——→ Product Market ——>Government’s 20%

Goods and Services

Modified: Government’s 20% ——> Businesses and Households

Services

Modified: Businesses and Households ——> Government’s 20 %

Taxes