Primarily, it looks at the way money, goods, and services move throughout the economy. The circular flow of economic activity is a model showing the basic economic relationships within a market economy. Please help with the following questions. The basic circular flow of income model consists of seven assumptions: The economy consists of two sectors: households and firms. This lesson introduces the circular flow model to students by creating a model in the classroo m and through video clips from Discovery Education streaming . Households spend all of their income (Y) on goods and services or consumption (C). There is no saving (S). There are three basic elements, or what are referred to as sectors, of the economy that must interact. It illustrates the balance between injections and leakages in our economy. Circular flow Diagram is a visual model of the economy that shows how dollars flows through markets among households and firms. 10,000. In this model, it shows how there is a cycle of exchange processes arising from the flow of money and the flow of goods and services. What does The Basic Circular Flow Model show? The circular flow of income is a model that represents how money moves around in an economy. The circular flow diagram is a basic model used in economics to show how an economy functions. 10,000 from the sale of ‘factor services’ to business sector and this business sector makes use of these inputs to produce an output in the economy exactly equal to Rs. Circular Flow Lesson Plan. The model depicts circular flow in two-sector simple economy, where household sector earns Rs. This model is called the Circular Flow Model. The circular flow model shown in Figure 2.3 illustrates exchanges in two markets, the product market and the factor market. Breaking down Circular Flow Diagram The economy consists of millions of people engaged in many activities—buying, selling, working, hiring, manufacturing, and so on. The primary actors in the circular flow model are households and business firms—the two main components of the private sector in the U.S. domestic economy. household and business The circular flow of income is illustrated in the circular flow model of the economy, which is one of the most significant basic models within economics. All output (O) produced by firms is purchased by households through their expenditure (E). The Basic Circular flow model The basic circular flow model is an economic model that displays the flow of money through the economy. “Basic Circular Flow Model in Economics” Assignment #1 The basic circular flow model in economics is aimed at analyzing the relationship between the two backbones of economy: the firms and the households. What the circular flow model tells us is that three basic elements of the econmy will work and interact together to ensure that our needs and wants are provided for. 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