The document summarizes the circular flow of economic activity between households and firms. It describes how goods, services, and money flow between the two sectors as households consume goods and services and firms produce goods and services. It also explains how the government and foreign sectors interact with households and firms through taxes, transfer payments, imports, and exports. The circular flow model illustrates that the economy functions as an interconnected system and that incomes received by one sector are spent on the goods and services of the other, keeping the flow of economic activity ongoing.
1. THE CIRCULAR FLOW OF ECONOMIC ACTIVITY INTRODUCTORY MACROECONOMICS By: Cristobal M. Pagoso Rosemary P. Dinio George A. Villasis Prepared by: GREGAR DONAVEN E. VALDEHUEZA, MBA Lourdes College Instructor
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6. Circular Flow of Goods Among Production Units FINAL GOOD FIRM RAW MATERIAL FIRM CONSUMERS INTERMEDIATE GOOD FIRM RAW MATERIALS FINAL GOODS INTERMEDIATE GOODS
7. Interrelation Between Production Units & Households HOUSEHOLDS RESOURCES RESOURCES RESOURCES FINAL GOOD FIRM INTERMEDIATE GOOD FIRM RAW MATERIAL FIRM
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9. The Circular Flow of Income PURCHASES OF GOODS AND SERVICES INCOME FLOW OF WAGES, INTERESTS, RENTS HOUSEHOLDS PRODUCING UNITS
10. Circular Flow of Income Among Production Units FINAL GOOD FIRM RAW MATERIALS FIRM MONEY PAYMENTS FOR INTERMEDIATE GOODS MONEY PAYMENTS FOR RAW MATERIALS INTERMEDIATE GOOD FIRM HOUSEHOLDS MONEY PAYMENTS FOR FINAL GOODS
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12. The Circular Flow of Goods & Income of Households & Firms with the Government & Foreign Countries GOVERNMENT HOUSEHOLDS PRODUCING UNITS FOREIGN COUNTRIES Income Payments of Wages, Rent, Dividends, & Interests Purchase of Goods & Services Economic Resources Taxes Taxes Wages, Transfer Payments Purchase of Goods & Services Goods & Services Money Payments for Imports Money Payments for Exports
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15. The Circular Flow of Economic Activity Reflecting The Outflows & The Inflows HOUSEHOLDS PRODUCING UNITS Income Payments of Wages, Rent, Dividends, & Interests Purchase of Goods & Services Economic Resources Goods & Services IMPORTS TAXES SAVINGS EXPORTS EXPENDITURES INVESTMENTS Foreign Countries Government Banks
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