How? People all over the world work in companies, these companies pay their salaries, and with that money people buy products and services that satisfy their needs. This way, it works like a cycle where everything comes back to its place. This diagram explains the general movement of money on a day-to-day basis through the relationship that exists between the main economic agents, such as companies, families and the public sector. The government is added to the basic circular flow model (two-sector model) in the three-sector circular flow model.The circular flow diagram is one of the basic concepts of economics. Here are the most common combinations of economic factors in the circular flow. The circular flow model can be expanded in several ways depending on the economic sectors involved. The circular flow of income also represents three ways to calculate the national income: Goods, money, and services are the three major flows in the economy. In the economy, goods and services move in one direction while money flows in the other way. ![]() In addition to firms, households and governments, there is also the financial sector that enables money exchange and helps to convert savings into investments for economic development.
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