Circular flow of the economy
Agents of the circular flow
Agents of the circular flow , functions and main resource :
non-financial corporations produce goods and services and draw on sales proceeds .
households consume and draw on employee income .
credit institutions finance and draw on deposits .
insurance companies provide insurance and draw on premiums .
general government provides collective services and draws on compulsory payments .
private non-profit institutions produce services for households and draw on voluntary payments .
the rest of the world .
Operations of the circular flow
Categories of operations in the circular flow :
production , supplied to and/or intended for the market
distribution , of value added (income)
satisfaction of needs
financing
Types of distribution :
primary , of gross income .
secondary , of disposable income , after redistribution .
Types of needs satisfaction :
final consumption , for human needs
intermediate consumption , for production needs
investment , that is, the acquisition of durable means of production
Types of financing :
counterpart upon the settlement of an operation
unrelated to an operation : deposits, securities, loans
Understanding the circular flow
In the circular flow:
one agent's costs are another's resources .
Understanding the circular flow requires:
taking all interactions into account.