"What goes around comes around." The circular flow begins with the spending habits of consumers. How much and how fast consumers spend then drives the amount of investments that businesses make in resources to produce goods. These investments in turn affect the number of jobs that are available and the general economic health of a region. As more jobs become available, consumers have more money to spend. Conversely, as employment levels drop, consumers have less money to spend on goods and services. Consumer spending also determines the kinds and quantities of products that businesses produce.[1]

Circular Flow of Economic Activity
Circular Flow of Economic Activity

Picture Citation.[2]

When consumers make purchases, goods and services are transferred from businesses to households in exchange for money payments. That money is used in turn by businesses to pay for productive resources (natural, human, and capital) and to pay taxes.[3]


When people buy things, products and services are traded from businesses to the consumer in exchange for money. That money is then used by businesses to to expand and create more goods and services.

SS.D.2.4. The student understands and is able to explain the circular flow model.
  1. http://www.novelguide.com/a/discover/eueh_01/eueh_01_00163.html
  2. http://images.google.com/imgres?imgurl=http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/ART/CircFlow.gif&imgrefurl=http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/Circular_flows.htm&usg=__Y7bmso7vedittf51zWPNZMpuYbI=&h=447&w=626&sz=87&hl=en&start=7&um=1&itbs=1&tbnid=RbgF75k_UiyKRM:&tbnh=97&tbnw=136&prev=/images%3Fq%3DCircular%2Bflow%2Bof%2Beconomic%2Bactivity%2Bpicture%26um%3D1%26hl%3Den%26client%3Dfirefox-a%26sa%3DN%26rls%3Dorg.mozilla:en-US:official%26tbs%3Disch:1
  3. http://www.fte.org/teachers/programs/rightstart/curriculum/topic8/nationaleconomy.php