Circular Flow Model Business Government Individuals Investors Government Consumer Product Markets Resource Markets Financial Marginal- additional, MB= Marginal Benefit, MC= Marginal Cost, MR- Marginal Revenue, MRP- Resources produced, MRC- Resource cost, MSB- Marginal Social Benefit, MSC- Marginal Social Cost

Circular Flow Model Business Government Individuals Investors Government Consumer Product Markets Resource Markets Financial Goods and Services Spending Revenue Resources- factors of production Land Labor capital entrepreneurship Resources- factors of production Cost Income Goods and Services Gov’t Spending Resources and labor Gov’t Spending Taxes and loans Taxes Subsidies Transfer Payments Public Goods/Services Supply Demand Supply Demand Marginal- additional, MB= Marginal Benefit, MC= Marginal Cost, MR- Marginal Revenue, MRP- Resources produced, MRC- Resource cost, MSB- Marginal Social Benefit, MSC- Marginal Social Cost MB= MC Utility Maximization MR= MC Profit Maximizing Rule (MC) S= D (MB) or (MR) Profit maximizing rule of hiring MRP= MRC Loans Interest Consumers + Investors + Government + Net Exports __________ Gross Domestic Production MSB= MSC

If you think of the Circular flow model as a machine then consider what can speed it up and what can slow it down. In other words what acts like and brake and what acts like a gas pedal. Also what can put the machine “out of gear?” LawsGovernment Economic PoliciesTaxes/tax cutsSubsidies Price Controls Interest rates Government An increase or decrease of spending (fiscal policy) The Federal Reserve and the Banks Willingness to lead The Budget Monetary Policy Business Types of competitionPrice GougingInvesting Households HiringConfidence Are we buying? Employment Inflation Regulation Think about a big tub of water carried by four people.

Circular Flow Model Business Government Individuals Investors Government Consumer Product Markets Resource Markets Financial Goods and Services Spending Revenue Resources- factors of production Land Labor capital entrepreneurship Resources- factors of production Cost Income Goods and Services Gov’t Spending Resources and labor Gov’t Spending Taxes and loans Taxes Subsidies Transfer Payments Public Goods/Services Supply Demand Supply Demand Marginal- additional