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CIRCULAR FLOW, Illustrates how money, goods, and services move between…
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Illustrates how money, goods, and services move between people, businesses, and the government within an economy. It highlights the interdependence between households, businesses, and government sectors.
Closed Economy: Trade occurs only within the country, without international interactions.
Open Economy: Engages in international trade, allowing imports and exports.
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- Goods (Products) and Services Market: Businesses sell goods and services (e.g., food, clothing, and
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- Factor Market: Households provide businesses with labour, land, and capital in exchange for
wages, rent, and interest.
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o Households provide resources (labour, land, capital) → Businesses supply goods and services.
o Adds the government, which collects taxes and provides public goods.
o Includes international trade (imports and exports). o Reflects open economies interacting globally.
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- Real Flow
o The physical exchange of goods, services, and resources. o Example: A bakery delivers bread to customers.
- Money Flow
o The exchange of money for goods, services, and wages.
o Example: Customers pay for bread; businesses pay wages to workers.