Answer to Question #242304 in Macroeconomics for varoujan02

Question

Draw a simple circular flow diagram to illustrate the structure of a market economy. Include businesses and households, input and output markets, and real and money flows.

Answer 1

The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money. That is the basic form of the model, but actual money flows are more complicated.