Circular Flow of Money

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Presentation on The Circular Flow of Money : 

Presentation on The Circular Flow of Money Prepared By IMRAN ALI KALWAR 2K6ME14 Assigned By SIR ASHFAQUE AHMED MEMON

DISCUSSION : 

The Circular Flow of Money 2 DISCUSSION The circular flow diagram is a simple illustration to show how income/money flows through the economy between producers and consumers. The diagram makes it clear that consumers and producers are interdependent. Consumers rely on producers to make goods and services available. When consumers buy products, money flows to producers. At the same time, producers rely on consumers to provide labor for production. When labor is provided, people get paid and that allows them to buy goods and services.

Slide 3: 

The Circular Flow of Money 3 The circular flow diagram starts with two economic decision units, the household and the firm. These two entities capture the ideas of consumption (household) and production (firm). The diagram goes on to illustrate the flow of money between the two sectors of the economy. Consumers buy goods and services from firms, but firms pay people for their labor. This exchange of money takes place in two different markets, the resource market and the output market

Slide 4: 

The Circular Flow of Money 4 The resource market is that where firms buy the materials and labor that they need to produce their product. A firm is required to produce goods and labor is to run the machines. The firm then converts these resources into goods that they sell in the output market. Households provide labor to firms in the resource market. When we go to work in the morning, we are participating in the labor market. We earn money from the firms and this allows us to buy goods and services in the output market.

From The Firm’s Perspective : 

The Circular Flow of Money 5 From The Firm’s Perspective Purchasing resources in the resource market, Using the resources to produce a good or service, Selling the item to others in the output market.

From The Consumer’s Perspective : 

The Circular Flow of Money 6 From The Consumer’s Perspective Providing labor to firms through the resource market, in exchange for money. Purchasing goods and services from firms in the output market.

APPLICATIONS : 

The Circular Flow of Money 7 APPLICATIONS The circular flow diagram represents the total incomes and total expenditures. The circular flow diagram represents the total outputs arising in several sectors of nation’s productions. The circular flow diagram represents the sum of all consumers’ expenditures, government expenditures on goods and services and also net expenditures on capital goods.

DIAGRAMS : 

The Circular Flow of Money 8 DIAGRAMS

Slide 9: 

The Circular Flow of Money 9

OBJECTIVES : 

The Circular Flow of Money 10 OBJECTIVES Students will understand the circular flow of income in a market economy. Students will be able to recognize examples of the flow of income. Students will be able to develop their own circular flow diagram for different products.