Circular flow Diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. Definition: A Circular flow model of the economy is a graphical representation of the movement of money between three sectors – businesses, households, and the government – and three markets – production factors, products, and the financial market. It clearly depicts the leakages and injection in any economy. It is also often referred to as the Two Sector Model, because it analyzes the relationship between two economic sectors; households and firms.More specifically, the model illustrates basic exchange processes between the … ... Economics AP®︎/College Macroeconomics Economic indicators and the business cycle The Circular Flow and GDP. Macroeconomics Aggregates: – Unemployment rate: Percent of people in the labor force is not working but searching for work. Macroeconomics – The study of the aggregate (total) Behavior of the whole economy. AP Macroeconomics Chapter 8: Macroeconomic Measures of Performance 8.1 The Circular Flow Model The Circular Flow Model Circular flow of economic activity: a model that shows how households and firms circulate resources, goods, and incomes through the economy. The circular flow is comprised of the resource market, households, product market, businesses, and the government. Goods flow from firms to households through the … By Raphael Zeder | Updated Jun 26, 2020 (Published Sep 19, 2016). The circular flow model demonstrates interactions within the economy, including;-interactions between households and firms-interactions between different sectors of the economy. GDP equals the sum of production by firms of goods and services for personal consumption (1), private investment (2), government purchases (3), and net exports (4). For AP, IB, or College Microeconomics and Macroeconomics. Breaking down Circular Flow Diagram The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. 20 question review game covering the circular flow model with explanations. Figure 6.5 Spending in the Circular Flow Model. Macroeconomics equilibrium is achieved when aggregate supply and aggregate demand meet. Factor Payments-Payment for the factors of production, namely rent, wages, interest, and profit. Models of Circular Flow in Economics. Circular Flow of Income and Expenditure The circular flow of income and expenditure clearly presents the flow of resources and payments among the sectors of the economy. Household decides both economic resources and factors of production. These resources can be labor force or capital stock or both. Inputs flow from households to firms through the resource market. 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