Describe the relationships between the major sectors of the economy. Demonstrate a thorough understanding of the relationships between sectors of the economy. Explain how changes in one sector of the economy impact on other sectors. Achieved Excellence Merit and

Interdependence The Circular Flow Model Different Markets

Households are consumers of goods and services and providers of resources (such as labour) Firms employ resources (such as labour) and uses them to create goods and services Households Firms Income Resources Goods and Services Consumer Spending Goods and services flow from Firms to Households in return for Consumer Spending (a money flow). Resources flow from Households to Firms in return for Income (a money flow).

In which flow or sector would you classify the following? Money spent on a snowboard Timber for the core A snowboard manufacturer Payment for timber Profits from the sale of snowboards A factory worker Wages paid to a factory worker Consumer Spending Resources Firms Resources Income The buyer of a snowboard Households A snowboard Goods/Services Households Firms Income Resources Goods and Services Consumer Spending

Savings Investment Finance The model can be simplified by leaving out the Real Flows. Households Firms Income Resources Goods and Services Consumer Spending Savings can be defined as income not spent Investment can be defined as the creation of capital goods

Savings Investment Finance In which flow or sector would you classify the following? Chris buys a snowboard LBJ Ltd buys a cutting machine Chris buys shares in LBJ Chris gets a dividend on his shares LBJ researches a new snowboard design LBJ uses a share float to expand their factory Chris receives his salary Consumer Spending Investment Savings Investment Income Investment Chris deposits money in the bank Savings Households Firms Income Consumer Spending Savings can be defined as income not spent Investment can be defined as the creation of capital goods