In the Circular Flow model, businesses do the following -
A. Businesses send services to the government.
B. Businesses send wages to the households.
The circular flow model demonstrates how cash movements through society. cash flows from producers to workers as wages and flows back to producers as fee for products. In quick, an economy is an endless circular flow of money.
- The circular flow model demonstrates how money moves from producers to households and back once more in an endless loop.
- In an economy, money movements from manufacturers to employees as wages and then again from workers to manufacturers as workers spend money on services and products.
- The models can be made more complex to include additions to the money supply, like exports, and leakages from the money supply, like imports.
- while all of these factors are totaled, the end result is a nation's gross domestic product (GDP) or the national income.
- analyzing the circular go with the flow version and its current effect on GDP can assist governments and central banks adjust monetary and monetary policy to improve an economy.
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