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Circular Flow Model Resource Markets Business Government Individuals

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Presentation on theme: "Circular Flow Model Resource Markets Business Government Individuals"— Presentation transcript:

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

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

3 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?” Government Laws Government Economic Policies Taxes/tax cuts Subsidies Price Controls The Budget An increase or decrease of spending (fiscal policy) Regulation The Federal Reserve and the Banks Interest rates Willingness to lead Monetary Policy Inflation Business Types of competition Price Gouging Investing Hiring Confidence Households Confidence Are we buying? Employment Think about a big tub of water carried by four people.

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

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