Economic or Circular Flow

Resources, goods and services, and money flow continuously among households, businesses, and markets in the United States economy. Goods, services, and resources flow in one direction. Money flows in the opposite direction. Consumers (households), businesses (producers), and markets interact in an economic flow or circular flow or cycle.

Economic or Circular Flow

Consumers (households) in the United States own the many different kinds of resources that are used in production. They sell these resources to businesses and use the money they make (income) to purchase products made by businesses.

Economic or Circular Flow

Businesses (producers) buy the resources available in the marketplace.  They then use these resources to make products which they sell to consumers, other businesses, and the government.  The profits made by the businesses are then used to buy more resources.

Economic or Circular Flow

Consumers and businesses spend money and the income is used by households to purchase goods and services and by producers to purchase resources.

Economic or Circular Flow

Government also plays a role in this economic cycle by taxing consumers and businesses. They then use this tax revenue to provide public goods and services.

Economic or Circular Flow

Consumers and businesses use their savings and financial investments to provide financial capital.  This financial capital can be borrowed from financial institutions by people or business owners to help businesses expand and grow.

Economic or Circular Flow

Private financial institutions, such as banks and credit unions receive deposits and make loans. These financial institutions encourage saving and investing by paying interest on deposits.  Financial institutions help to facilitate, or enable an exchange of money between savers and borrowers.