1. The Circular Flow of Economic Activity

2. Consumers w Consumers play 3 roles in the economy Consumer -- user of goods and services. Free to choose. Can spend now for immediate wants or save for future consumption. Worker -- producer of goods and services. Earner of income. Citizen -- join with others to make group decisions. Influence laws, pay taxes, vote. Determine use of public goods and services.

3. Business and Industry w Provide goods and services in return for profit. w 4 components production processing distribution services

4. Government w Provides legal framework for economic activity. Also is a producer and consumer as well as an economic force. Can use its economic power to accomplish socially desirable goals.

5. International Trade w Provides better, different, or cheaper goods and services and the resources we need to produce.

6. The Circular Flow w The circular flow follows two paths through the economy -- money and goods and services. w It shows the interaction between the 4 parts of the economy -- consumers, businesses, government, and international trade.

7. Flow of Goods and Services w Individuals provide the factors of production (land, labor, capital, management). w Businesses use the factors to produce goods and services.

8. The Money Flow w Businesses pay for the factors of production. w Individuals buy the goods and services.

10. w By adding the government, you get two new circles. w One shows interaction between the government and consumers.

12. w The second shows the interaction between the government and businesses.

14. w Putting those together gives you the two inner circles.

16. w Next we put consumers, businesses and the government together.

18. International Trade w The last part of the flow chart involves money and goods and services flowing into and out of the country via imports and exports. w See page 428 of your textbook.