Objective 10: Circular Flow
Households, businesses, and government are interdependent in a market economy. Resources, goods and services, and money constantly flow in a market economy.
How do households, businesses, and government interact to sustain the operation of a market economy?
The interaction of households, businesses, and government are referred to as the "circular flow" of economic activity.
- Households, which are owners of the factors of production, sell those resources to businesses .
- Businesses use the resources to produce goods and services that households want.
- Households use the money from the sale of resources to purchase goods and services.
- Businesses use the money from the sale of goods and services to buy more productive resources.
- Government taxation policies and regulations may speed up or slow down the flow of resources, goods and services, and money in a market economy.
Below is the graphic from the end of the video.
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