The Circular Flow Model and Gross Domestic Product How Much Did Your Country Produce Last Year?

Simple Circular Flow Diagram NOTE--There are only two actors in this simple model: 1.Households, and 2.Firms What do Households provide to Firms? What do Firms provide to Households?

Expanded Circular Flow Diagram NOTE--There are four actors in this model: 1.Households, 2.Firms, 3.Government, and 4.the Rest of the World. Each of these actors contributes to Gross Domestic Product (GDP). What flows into GDP (look at the black arrow) in the diagram?

Gross Domestic Product Defined GDP: How much “stuff” did our country’s economy produce this year? GDP = C + I + G + X – IM C = Consumer spending (by households) I = Investment spending (by firms) G = Government purchases X = Exports (sold by domestic firms to the rest of the world) IM = Imports (purchased by domestic consumers from the rest of the world)