Circular flow AP Macroeconomics
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FlashcardsWhat does the circular flow model show?
How money, goods, and services flow between households, businesses, and the government in an economy.
Who owns the factors of production in the circular flow model?
Households
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16 Terms
What does the circular flow model show?
How money, goods, and services flow between households, businesses, and the government in an economy.
Who owns the factors of production in the circular flow model?
Households
Who buys goods and services in the product market?
Households
Who sells goods and services in the product market?
Firms (businesses)
What is the product market?
The market where goods and services are bought and sold
What is the factor (resource) market?
The market where productive resources (land, labor, capital) are bought and sold
Who buys factors of production in the factor market?
Firms (businesses)
Who earns income from selling factors of production?
Households
What are the four factors of production?
Land, labor, capital, and entrepreneurship
What do households receive in exchange for providing factors of production?
Income (wages, rent, interest, profit)
What do firms pay households for in the resource market?
Wages, rent, interest, and profit
What role does the government play in the circular flow?
It collects taxes and provides public goods/services and transfers
What flows from households to firms in the product market?
Spending (consumption)
What flows from firms to households in the product market?
Goods and services
What flows from firms to households in the factor market?
Income (payments for resources)
What flows from households to firms in the factor market?
Factors of production (land, labor, capital)