Economic Perspectives: The Circular Flow Diagram

-Create your own circular flow model. **Be able to explain to a classmate.**
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In this lesson, we will look at the basic circular flow diagram

The world's oceans travel in well-defined circular patterns called currents which flow like rivers. When the atmosphere pushes over the surface of the ocean some of the energy goes to forming waves while the rest goes to pushing the water in the direction of the wind. North of the equator currents bend to the right; south of the equator, they bend to the left. This is called the Coriolis effect. Winds, continents and the Coriolis effect make currents flow around the oceans in huge loops called gyres.

Types of markets and a description of how the circular flow of income and output works.
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The Circular Flow Model of a Market Economy

This analogy, however,does not take into account the huge differences in the size and the flowrates of these cells.
The mobile rock beneath the rigid plates is believed to be moving ina circular manner somewhat like a pot of thick soup when heated to boiling.

Types of markets and a description of how the circular flow of income and output works.
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Equilibrium of national income is reached when (planned) Injections = (planned) Leakages. The income in the circular flow is always equal to the national income, however this equilibrium does not necessarily mean the economy is at full employment.

Income going into the flow is called injections and income going out of the flow is known as leakages.
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