How does the process work in a circular flow diagram when applying it to an economy?

1 Answer
Mar 24, 2015
  • Well you have the main factor of production which is the Labor force (the people)
  • The Labor force help businesses produce final goods and in return they receive an income
  • After that the income they receive is spent on other goods and services
  • After that the income they receive is spent on other goods and services
  • The spending money goes back to the business to help them produce and give incomes
  • That is the circular diagram when you look at a macro-level you will find that the aggregate production is the same as the aggregate consumption (spending of the people)
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