11+ The Circular Flow Model. The circular flow model is a term used to describe how products and money move in an economy. For those who are reviewing this for an ap economics exam, this most often shows up as multiple choice.
Circular flow diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. This model is called the circular flow model. The circular flow model illustrates the flows of money, resources, and products throughout an economy.
Economists have developed a model of how an economy works:
11+ The Circular Flow Model. What is the circular flow model in economics? In this next series of images we build up the circular flow model from just having a domestic sector and then adding in an external sector (exports and imports). The circular flow model shows the interrelated web of decision making and economic activity involving businesses and households. The simple circular flow model is comprised of just the private sector, which includes private individuals, private households, and private firms.