preview

The Circular Flow Diagram Analysis

Good Essays

The circular Flow diagram that I created above contains these sectors such as Domestic firms, Household, the rest of the world and Government. The diagram illustrates the continuous movement of money for goods and services between producers and consumers. The household sector includes everyone; such as you and me we are buying products from everyone and selling our work. So this is everyone who may be seeking to satisfy unlimited wants and needs. Households are responsible for consumption. It also owns all productive resources. The household interact more with domestic firms. The Domestic Firms includes institutions such as corporations and partnerships. Their job in the diagram is to combine resources to produce goods and services. So this means the responsibility for this sector is to produce. The Government sector which includes the federal and local government. This section contains of collecting taxes. The Rest of the world section provides imports and exports of services and goods. When we send money to firms we get products and services. We can also send the money to the rest of the world and that’s when we import goods. When money comes from the rest of the world to firms this is called exporting. Money that comes from Domestic Firms to households are wages or rent. We also see money going from household to government as taxes and the same with the domestic firms giving money to the government it is also taxes. Government to house holds which are transfer

Get Access