The Circular

Flow Model
prepared by:
Benmar O. Tabuso
Economic activities take place through the
interrelationship that exists between two
economic units :
1. the household, which is the basic consuming unit; and
2. the business firm, which is the basic producing unit.
The Circular Flow Model
• The Circular Flow Model is a model that is used to show the flow of
resources and income through an economy. It is a simple economic model
showing the relationship between money income and spending for the
economy.
• The circular flow model is only a model, a simplification of a complex
reality. However, it is necessary to be understood in order to have a clear
understanding of the complexities that are encountered in the economic
activities of a nation.
The Circular Flow Model