The Circular Flow of Money
Learning Objective
I can illustrate how money, goods, and services move between households and firms in a circular flow model.
Lesson Flow
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The circular flow of income
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Guided Notes
Key concepts students will learn:
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In a two-sector economy, if consumers save money in a bank, this is considered a leakage from the circular flow, while firms borrowing money from a bank is considered an injection.
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In a three-sector economy, taxation is an additional leakage because it reduces spending between households and firms, while government spending is an injection because it increases spending.
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In a four-sector open economy, the three leakages are savings, taxation, and import expenditure, while the three injections are investment, government expenditure, and export revenue.
Practice
12 questions • Multiple choice & Short answer
Exit Ticket
“Draw a circular flow diagram that includes households and firms. Label the flows of goods/services and the flows of money between these two sectors.”
Teacher Guide
Get the complete package:
- Answer keys for all questions
- Differentiation strategies
- Extension activities
- Printable student handouts
