Question

Circular-flow Diagram
a visual model of the economy that shows how dollars flow through markets among households and firms; simplifies the economy by including only two types of decision makers: firms and households. Firms produce goods and services using inputs, such as labor, land, and capital. These inputs are called the factors of production. Households own the factors of production and consume all the goods and services that the firms produce. Therefore, in the markets for the factors of production, households are sellers, and firms are buyers. See Section: Our First Model: The Circular-Flow Diagram.

Answer 1

A visual model of the economy known as a circular flow diagram depicts the way that money moves through markets between businesses and households.

What does a market economy's circular flow model demonstrate?

The circular flow model depicts the interaction between two types of economic markets—the market for resources and the market for goods and services—and two groups of economic decision-makers—households and businesses.

How does a circular flow chart show how money moves through an economy?

The circular flow model shows how money moves in a never-ending loop from producers to households and back again. Money moves from producers to workers as wages and back again as workers spend money on goods and services in an economy.

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