5 Questions
In the circular flow of income model, what do the flows of money and goods exchanged in a closed circuit correspond to?
Flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction
Who developed and visualized the concept of circular flow in the so-called Tableau économique?
François Quesnay
What are the major exchanges represented as in the circular flow of income model?
Flows of money, goods, and services between economic agents
What is the basis of national accounts and macroeconomics according to the text?
Circular flow analysis
What are individuals providing that enables businesses to produce goods and services in the circular flow model?
Labour
Study Notes
Circular Flow of Income Model
- The circular flow of income model represents the flows of money and goods exchanged in a closed circuit between households and firms.
Development of Circular Flow Concept
- The concept of circular flow was developed and visualized by François Quesnay in the so-called Tableau économique.
Major Exchanges in Circular Flow
- The major exchanges represented in the circular flow of income model are:
- Households providing factors of production (e.g. labor) to firms
- Firms providing goods and services to households
- Households receiving income from firms
- Firms receiving revenue from households
Basis of National Accounts and Macroeconomics
- The circular flow of income model is the basis of national accounts and macroeconomics.
Role of Individuals in Circular Flow
- Individuals provide factors of production (e.g. labor) to businesses, enabling them to produce goods and services in the circular flow model.
Test your knowledge about the circular flow of income model, which represents the flows of money, goods, and services between economic agents in an economy. Understand the basis of national accounts and macroeconomics.
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