The circular flow ♡

• In a closed economy, there are three main participants: households, businesses, and government
• Households are described as one or more people living together and making economic decisions
• Households own factors of production such as labour, capital, land, and entrepreneurship
• Households have wants and needs that must be satisfied and they use the factors of production they own as a means of exchange
• Often households have many wants and needs but may not always have the means to satisfy them, so they need to work to earn money to purchase goods and services
• Businesses are organisations that buy and use factors of production to produce goods and services
• Goods and services produced by businesses are used to satisfy the wants and needs of consumers in exchange for money
• Businesses are responsible for providing households, government, and other businesses with a variety of goods and services
• The government in a closed economy plays a dual role as a producer and consumer
• As a producer, the government provides various services such as education, healthcare, and infrastructure
• The government is funded by taxes paid by households and businesses
• As a consumer, the government purchases goods and services from businesses
• In a closed economy, there are three main participants: households, businesses, and government
• Households are made up of one or more people living together and making economic decisions
• Households own factors of production such as labor, capital, land, and entrepreneurship
• Households need to work to earn money to purchase goods and services to satisfy their wants and needs
• Businesses buy and use factors of production to produce goods and services
• Businesses provide goods and services to households, government, and the foreign sector in exchange for money
• Businesses pay taxes to the government for services rendered and use of infrastructure
• Government acts as both a producer and consumer in the economy
• As a producer, the government provides goods and services to households and businesses, partly funded by taxes collected
• The government also buys factors of production from households and businesses
• In a closed economy, goods and services flow between participants in exchange for a fee
• Households and government buy goods and services from businesses in exchange for money
• Businesses identify the wants and needs of consumers and provide goods and services to satisfy them
• Money flows between participants in the economy, circulating continuously
• Households pay businesses for goods and services to satisfy their wants and needs
• Businesses pay households for factors of production in the form of salaries, wages, interest, rent, or a share of profit
• Factors of production in a closed economy include labor, capital, land, and entrepreneurship
• Capital is the money needed to start or grow a business, flowing from individuals or households into businesses
• Entrepreneurship involves using knowledge, skills, and effort to start a business opportunity for profit
• Labour is the human effort needed to produce goods and services, provided by households to businesses
• Land includes natural resources used in production, owned by households or government and sold to businesses
• Circular flow =how money moved through society
• Closed economy does not interact with the economy of any other country
• Closed economy does not participate in international trade, meaning it does not import or export goods/services from other countries
• In a closed economy, the three participants are households, businesses, and government
• Four factors of production:

  • Land: includes any natural resource
  • Capital: includes machinery, tools, and buildings
  • Labor: the effort that humans contribute
  • Entrepreneurship: involves starting a business opportunity with creativity and innovation
• Households make economic decisions such as what food to buy, what jobs to have, whether to purchase a house/car, and where to obtain education and healthcare
• Businesses are organizations that buy and use factors of production to produce goods and services in exchange for money