THE CIRCULAR FLOW

OF ECONOMIC
ACTIVITY
 Wealth  Income represents money earned per year

 Ownership of property  The stock of capital in country

 Savings  Water in a reservoir

 Investments  Water stored in a tank at a point of time

 Water in a river  Rental income from property

 STOCK AND FLOW CONCEPTS

 Stock refers to the  Flow refers to the

measure of quantity at a measure of movement of
point of time quantity over a period of
time

 It is an accumulation of a
commodity  The movement of water
from upstream to
downstream is a flow
 THE CIRCULAR FLOW OF THE
PRODUCTION PROCESS
LAND, LABOR, CAPITAL
(Economic Resources)

HOUSEHOLDS FIRMS
(Resource Owners) (Organizers and Users of
Economic Resources)

GOODS & SERVICES

(Output)
 The Production Process

The process of producing goods and services

involves households and firms in a circular flow.
The economic resources of land, labor, and
capital are provided by the households and
used by the producing firms. These firms, in turn,
produce goods and services which are
delivered to households for consumption.