Circular Flow

Definitions:

• Circular flow: a model that describes the movement of money through the economy between participants.

• Closed economy: an economy that does not trade or interact with other economies at all. There are no exports or imports in a closed economy; it is self-sufficient.

• The participants:

  • Households

  • Businesses

  • The government

  • The goods and services market

  • The factor market.

Definitions:

• The flows do not happen in isolation.

• Economic activity is happening between households, businesses and the government all the time.

• Also, the flows do not stop.