The Circular Flow of Economic Activity is a helpful way to see how the economy works. It shows how money goes back and forth between households and businesses. Here’s how it works:
Spending and Income: Households buy things they need, like food and clothes. When they spend money, businesses make profits. If people start spending more, businesses do better, which can lead to more jobs for everyone.
Investment and Production: When businesses decide to spend money to make more products, it helps the economy grow. But if people stop spending, businesses might make fewer products. This can lead to job losses and lower incomes.
For instance, during a recession (a time when the economy isn't doing well), the flow of money slows down. This shows how all these parts are connected!
The Circular Flow of Economic Activity is a helpful way to see how the economy works. It shows how money goes back and forth between households and businesses. Here’s how it works:
Spending and Income: Households buy things they need, like food and clothes. When they spend money, businesses make profits. If people start spending more, businesses do better, which can lead to more jobs for everyone.
Investment and Production: When businesses decide to spend money to make more products, it helps the economy grow. But if people stop spending, businesses might make fewer products. This can lead to job losses and lower incomes.
For instance, during a recession (a time when the economy isn't doing well), the flow of money slows down. This shows how all these parts are connected!