1. Objective 9.8

2. Describe the circular flow of resources goods services money

3. Describe the circular flow of resources goods services money in the U
Describe the circular flow of resources goods services money in the U.S. economy

4. circular flow in market economy
A market economy is really made up of two markets.
a product market
a resource market

5. circular flow in market economy
In each of these markets, something is exchanged between producers and consumers.

6. PRODUCT market
pay to
sell to

7. RESOURCE market
sell to
pay to

8. product market

9. PRODUCT market
pay to
sell to

10. Goods (products) and services are exchanged for money.
1. PRODUCT market
Goods (products) and services
are exchanged
for money.

11. Producers provide goods (products) and services to individuals.
PRODUCT market
Producers provide
goods (products) and services
to individuals.

12. Individuals in turn provide money to producers in payment for
PRODUCT market
Individuals in turn
provide money
to producers
in payment for
the goods and services.

13. PRODUCT market to individuals pay goods & services money sell to
producers

14. resource market

15. RESOURCE market
sell to
pay to

16. PRODUCT market
pay to
sell to
pay
sell to to

17. Resources are exchanged for money
2. RESOURCE market
Resources
are exchanged
for money

18. Individuals provide resources (land/labor/capital) to producers.
RESOURCE market
Individuals provide resources (land/labor/capital)
to producers.

19. Producers in turn provide money (wages/rent/interest/profits)
RESOURCE market
Producers in turn provide money (wages/rent/interest/profits)
to individuals

20. RESOURCE market to sell pay to individuals capital goods, wages, rent
land, labor
wages, rent
interest, profit
pay to
producers

21. circular flow in market economy
When you put the
resource market
AND
product market
TOGETHER

22. circular flow in market economy
…it is called
the
CIRCULAR
FLOW
OF MONEY

23. Outside circle is PRODUCT Inside circle is RESOURCE
CIRCULAR FLOW OF MONEY
pay to
individuals
capital goods,
labor, land
wages, rent
interest, profit
goods &
services
money
sell to
producers
Outside circle is PRODUCT Inside circle is RESOURCE

25. How does SAVINGS and TAXES affect the circular flow of money?
take money out of the flow

26. SAVINGS by the consumer
When the consumer (labor) puts money into savings
he has less money
to spend on
goods and services

27. PRODUCT market pay to individuals savings goods & services bank
government
money
sell to
producers

28. SAVINGS by the consumer
BUT…
the producer
can borrow this money
to expand production

29. PRODUCT market pay to individuals savings goods & services bank
government
money
sell to
borrow
producers

30. TAXES on the consumer
When the consumer (labor) pays taxes to the government he has less money
to spend on
goods and services

31. PRODUCT market pay to individuals taxes goods & services bank
government
money
sell to
producers

33. BUT… the government has more money to spend on goods and services.
TAXES on the consumer
BUT…
the government has
more money to spend on
goods and services.

34. PRODUCT market pay to individuals taxes goods & services bank
government
money
sell
spend to
producers

35. SAVINGS by the producer
When the producer
makes a profit
he can save (re-invest) money and expand production

36. RESOURCE market to individuals sell capital goods, wages, rent
land, labor
wages, rent
interest, profit
re-invested
pay to
profit
producers

37. pays taxes to the government he has less money to re-invest into
TAXES on the producer
When the producer
pays taxes to the government he has less money
to re-invest into
expansion of production

38. RESOURCE market to individuals sell government capital goods,
land, labor
wages, rent
interest, profit
pay to
taxes
producers

39. The money (savings and taxes) does NOT disappear from the
circular flow…

40. Money in the form of savings and taxes it is redirected in the
circular flow

42. Counter Clockwise outside
RESOURCE MARKET
Counter Clockwise
outside

43. PRODUCT MARKET
Clockwise
inside

44. Tax services and programs Provides public needs
GOVERNMENT
Tax services and programs
Provides public needs

45. Save and get interest Lend to others to make capital
BANK
Save and get interest
Lend to others to make capital

46. MONEY: FOR GOODS (PRODUCT MARKET)

47. MONEY: FOR SERVICES (PRODUCT MARKET)

49. MONEY: WAGE FOR LABOR (RESOURCE MARKET)

50. MONEY: RENT FOR LAND (RESOURCE MARKET)

51. MONEY: PROFIT/INTEREST ON INVESTMENT (RESOURCE MARKET)