government households - montclair state universitylebelp/circularflowdiagram...and firms the...

The Circular Flow of the Economy 1© 2011, 2005 P. LeBel

Imported Inputs and

Semi-Finished Goods Physical Inputs Factor Physical Inputs Markets

Factor Purchases Factor Income

Taxes and Taxes and Borrowing Borrowing

Firms Expenditures Government Expenditures Households

Government Taxes Government Savingsand Borrowing and Repayments

Firm Income Product Household Purchases Goods and Services Markets Goods and Services

Savings and Savings and Repayments Repayments

Financial Intermediaries Loans and Loans and Withdrawals Withdrawals

Goods & Services Exports Purchases of Finished ImportsExport & Foreign Investment Income Imported Goods & Services

InternationalTransactions

The Structure of Factor Markets

Inputs in Production Functions Factor Market Paymentsand Technology:

Land - N Rent -R

Labor - L Wages - W

Capital - K Interest - I

Entrepreneurship - E Profit - Pr

The Structure of Factor Markets

Inputs in Production Functions Factor Market Paymentsand Technology:

Land - N Rent -R

Labor - L Wages - W

Capital - K Interest - I

Entrepreneurship - E Profit - Pr