Objective 9.8
Describe the circular flow of resources goods services money
Describe the circular flow of resources goods services money in the U Describe the circular flow of resources goods services money in the U.S. economy
circular flow in market economy A market economy is really made up of two markets. a product market a resource market
circular flow in market economy In each of these markets, something is exchanged between producers and consumers.
PRODUCT market pay to sell to
RESOURCE market sell to pay to
product market
PRODUCT market pay to sell to
Goods (products) and services are exchanged for money. 1. PRODUCT market Goods (products) and services are exchanged for money.
Producers provide goods (products) and services to individuals. PRODUCT market Producers provide goods (products) and services to individuals.
Individuals in turn provide money to producers in payment for PRODUCT market Individuals in turn provide money to producers in payment for the goods and services.
PRODUCT market to individuals pay goods & services money sell to producers
resource market
RESOURCE market sell to pay to
PRODUCT market pay to sell to pay sell to to
Resources are exchanged for money 2. RESOURCE market Resources are exchanged for money
Individuals provide resources (land/labor/capital) to producers. RESOURCE market Individuals provide resources (land/labor/capital) to producers.
Producers in turn provide money (wages/rent/interest/profits) RESOURCE market Producers in turn provide money (wages/rent/interest/profits) to individuals
RESOURCE market to sell pay to individuals capital goods, wages, rent land, labor wages, rent interest, profit pay to producers
circular flow in market economy When you put the resource market AND product market TOGETHER
circular flow in market economy …it is called the CIRCULAR FLOW OF MONEY
Outside circle is PRODUCT Inside circle is RESOURCE CIRCULAR FLOW OF MONEY pay to individuals capital goods, labor, land wages, rent interest, profit goods & services money sell to producers Outside circle is PRODUCT Inside circle is RESOURCE
How does SAVINGS and TAXES affect the circular flow of money? take money out of the flow
SAVINGS by the consumer When the consumer (labor) puts money into savings he has less money to spend on goods and services
PRODUCT market pay to individuals savings goods & services bank government money sell to producers
SAVINGS by the consumer BUT… the producer can borrow this money to expand production
PRODUCT market pay to individuals savings goods & services bank government money sell to borrow producers
TAXES on the consumer When the consumer (labor) pays taxes to the government he has less money to spend on goods and services
PRODUCT market pay to individuals taxes goods & services bank government money sell to producers
BUT… the government has more money to spend on goods and services. TAXES on the consumer BUT… the government has more money to spend on goods and services.
PRODUCT market pay to individuals taxes goods & services bank government money sell spend to producers
SAVINGS by the producer When the producer makes a profit he can save (re-invest) money and expand production
RESOURCE market to individuals sell capital goods, wages, rent land, labor wages, rent interest, profit re-invested pay to profit producers
pays taxes to the government he has less money to re-invest into TAXES on the producer When the producer pays taxes to the government he has less money to re-invest into expansion of production
RESOURCE market to individuals sell government capital goods, land, labor wages, rent interest, profit pay to taxes producers
The money (savings and taxes) does NOT disappear from the circular flow…
Money in the form of savings and taxes it is redirected in the circular flow
Counter Clockwise outside RESOURCE MARKET Counter Clockwise outside
PRODUCT MARKET Clockwise inside
Tax services and programs Provides public needs GOVERNMENT Tax services and programs Provides public needs
Save and get interest Lend to others to make capital BANK Save and get interest Lend to others to make capital
MONEY: FOR GOODS (PRODUCT MARKET)
MONEY: FOR SERVICES (PRODUCT MARKET)
MONEY: WAGE FOR LABOR (RESOURCE MARKET)
MONEY: RENT FOR LAND (RESOURCE MARKET)
MONEY: PROFIT/INTEREST ON INVESTMENT (RESOURCE MARKET)