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Circular Flow Model

Circular Flow Model. Resource Markets. Business. Individuals. Government. Consumer. Government. Investors. Product Markets. Financial . Marginal- additional, MB= Marginal Benefit, MC= Marginal Cost, MR- Marginal Revenue, MRP- Resources produced, MRC- Resource cost,

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Circular Flow Model

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

  2. 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 Individuals Government Taxes Taxes and loans MR= MC Profit Maximizing Rule MB= MC Utility Maximization Transfer Payments Subsidies Public Goods/Services Public Goods/Services Consumer Government Investors MSB= MSC Consumers + Investors + Government + Net Exports __________ Gross Domestic Production Gov’t Spending Goods and Services Goods and Services Goods and Services Loans Demand Supply Product Markets Interest Financial Revenue Spending (MC) S= D (MB) or (MR) Marginal- additional, MB= Marginal Benefit, MC= Marginal Cost, MR- Marginal Revenue, MRP- Resources produced, 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 Employment Confidence Are we buying? Think about a big tub of water carried by four people.

  4. Circular Flow Model 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 Individuals Government Taxes Taxes and loans Transfer Payments Subsidies Public Goods/Services Public Goods/Services Consumer Government Investors Gov’t Spending Goods and Services Goods and Services Goods and Services Demand Supply Product Markets Financial Revenue Spending Marginal- additional

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