5 Questions
What is the circular flow of income model?
A model representing flows of money, goods and services between economic agents
What do the flows of money and goods exchanged in the circular flow correspond in value?
They correspond in value and run in opposite directions
Who developed the concept of circular flow in the so-called Tableau économique?
François Quesnay
What is the basis of national accounts and macroeconomics?
Circular flow analysis
In its most basic form, what does the circular flow model consider?
A simple economy consisting solely of businesses and individuals
Study Notes
Circular Flow of Income Model
- The circular flow of income model is a graphical representation of the economy, showing the flows of income and expenditures between different sectors.
Key Characteristics
- The flows of money and goods exchanged in the circular flow correspond in value, meaning that the total value of goods and services produced is equal to the total value of income earned.
Development of Circular Flow
- The concept of circular flow was developed by French economist François Quesnay in the so-called Tableau économique, a visual representation of the economy.
National Accounts and Macroeconomics
- The circular flow of income model is the basis of national accounts and macroeconomics, as it provides a framework for understanding the economy at the aggregate level.
Basic Form of Circular Flow
- In its most basic form, the circular flow model considers the interactions between households and businesses, including the flows of income, expenditures, and production.
Test your knowledge of the circular flow of income model in economics with this quiz. Explore the exchanges of money, goods, and services between economic agents and their impact on the economy.
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