Economic Viewpoint of the Circular Flow Model

939 WordsFeb 3, 20184 Pages
Economic Viewpoint The circular flow model begins with consumer spending (Circular Flow of Economic Activity, 1999). Consumer spending drives the amount of business investments, which, in turn, creates more jobs that allow consumers more money to spend. When employment drops, jobs decrease, leaving consumers with less money to spend, which slows the economy. As employment rises, jobs are created that allow consumers more money to spend that speeds up the economy. When the government reduces spending, less money is put into public programs that in turn create jobs in the economy. As a result of fewer jobs, less goods and services are given to the economy. This provides less consumer spending and will slow the economy down to the extent the government reduces the funds to the programs. When households increase savings consumers are spending less on goods and services. This will slow down the amounts businesses invest in the creation of jobs, which, in turn, slow down the amount of money consumers have to spend. When this happens the economy will also slow down. "The United States has a mixed economy because privately owned business and the government play a role" (State, 2013). The US has a free enterprise system that emphasizes private ownership and private business produces most of the goods and services. The supply and demand determines the prices of goods and services. The prices, then, tells business what to produce. The government is primarily responsible for
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