INTERDEPENDENCE & THE CIRCULAR FLOW MODEL

Households Businesses Government

Land (natural resources) Labor (human resources) Capital (Tools, equipment, buildings) Entrepreneurship (New business risk-taker)

$Rent (land) + $Wages (labor) + $Interest (capital) + $Profit (entrepreneurs) = Household income $$$$$$$$$$$$

Spending Taxes Savings & Investing

Spending On what is it spent? PRIVATE GOODS & SERVICES

TAXES TO OBTAIN PUBLIC GOODS & SERVICES

What do Households do with income that is not Spent or Taxed? S A V I N G S

WHERE DO THEY KEEP THEIR SAVINGS????? BANKS BROKERS

What do the Banks & Brokers do with HOUSEHOLD SAVINGS???? INVEST Where? In businesses Large & Small

Constructing the Circular Flow Model Place the pieces on the blank model that you have using the steps on the second question set.

priv. G&S foreign Bus. $$$ foreign H &B. $$$ priv. G&S $$$ priv. G & S interest loans Circular Flow Model Name ___________________ Period___________________ Wages Private Goods and Services Land Government Savings Entrepreneurship Profit Households Banks/Brokers Investments Labor Businesses Public Goods and Services Capital Rent Taxes Interest Spending Loans Foreign House and Businesses $$$ labor capital land spending entrepreneurship taxes households government businesses pub. G & S rent profit wages Priv. G & Sinterest saving Banks/brokers investments

CIRCULAR FLOW ANALYSIS TOOL CIRCULAR FLOW ANALYSIS TOOL (Standard Two, Macro) Become an Economic Detective. Amaze your friends and family with your ability to explain, analyze, and make predictions about the whats, whys and wherefores of past and future economic issues and events.

CIRCULAR FLOW ANALYSIS TOOL The following tool uses the circular flow model to illustrate how an event or events in one part of an economy affects other major sectors of the economy. Use this tool to analyze the impact on the circular flow of economic activity. A particular event may affect only the producers and consumers of a specific good, such as a freeze that destroys the Florida orange crop, causing specific consumers and producers to adjust their economic choices and decisions.

CIRCULAR FLOW ANALYSIS TOOL These effects generally don’t impact larger segments of the economy. (Microeconomics) However, to the extent that large numbers of household incomes are affected by major decisions and events, the economies at local, state, national, and international levels will reflect the choices made by those households, businesses, and governments. (Macroeconomics)

Circular Flow Tool When given an event or an article, the detective will be able to use the following tool. It has 2 parts. A.On which part of the circular flow does this event first occur or on what part of the flow did the decision first occur? B. Trace the effects on the other parts of the flow.