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Circular Flow Infographic Activity (Answer Key)
Economists create models to illustrate economic activity. The circular flow model shows us how
households, businesses, and the government interact with one another in the economy. Each of these
three parts of the economy are affected by the actions of the others. This activity will help you analyze
these relationships using the infographic poster that accompanies it.
Who’s in the flow?
Use the information from your infographic poster to answer the following questions. For each of the
scenarios, you should identify:
a. the role of the person: buyer OR seller; the market: resource OR product
b. the sector: household OR firm
c. the sector receiving the money payment: household OR firm
1. Swooshy Sports sells a soccer ball to James. What can you tell about the transaction?
a. James was the ___buyer_______ of the soccer ball in the __product__ market.
b. James is part of the __household__ sector.
c. The money used in this transaction was paid to the __firm__ sector.
2. Margie has a large rural property where she grows pine trees and sells them to Big Paper
Company. What can you tell about the transaction?
a. Margie was the __seller__ of the land and trees in the _resource__ market.
b. Margie is part of the __household__ sector.
c. The money payment in this transaction went to the _household__ sector.
What’s in the flow?
Use the information from your infographic poster to answer the following questions. For each of the
scenarios, you should identify:
a. the market: resource OR product
b. the factor of production: land, labor, capital, OR entrepreneurship
c. the product: good OR service
1. Shayla has her own business selling tacos at a stand in a local park. For her taco stand, she grows
tomatoes in a small garden plot she rents from a man named Jack.
a. Shayla rents her garden plot in the _resource_ market.
b. The garden plot is a __land___________ resource.
c. A taco Shayla sells at her stand is a __good_____.
2. Show Me Productions Inc. just announced a big hit show will play at the Grand Theater in July.
Alec works at the snack bar inside the theater and says he can help you buy tickets to the show.
a. Show Me Productions Inc. will sell tickets to you in the ___product___ market.
b. Alec is an example of a __labor___ resource.
c. Show Me Productions Inc. is selling you a __service__.
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Where does the money go?
In the United States, most buying and selling is done using money. When money is used to buy a good or
service, the money is the “medium of exchange.Most of the time, U.S. dollars are the medium of
exchange in the United States. The circular flow model identifies several different types of money
payments. For each of the following scenarios, name of the money payment being described, using the
list below.
Rent
Interest
Taxes
Subsidies
Wages/Salaries
Profit
Transfer Payments
Revenue
Scenarios
Money Payments
1. Hope borrowed $1,000 to buy machinery for her small business. The total
amount she repaid to her lender was $1,200. The additional $200 she paid
her lender would be this type of money payment in the circular flow model.
Interest
2. The Salah household earned $60,000 in income last year by working at Big
Software Corporation. What type of money payment was this?
Wages/Salaries
3. Wayne retired and expects to receive $1,400 per month from his
government social security benefits. What would we call this type of
payment in the circular flow model?
Transfer Payment
4. Marta operates a small business selling custom jewelry. Last year, her
business received $40,000 in exchange for the jewelry it sold and paid
$35,000 in expenses. The $5,000 left over after Marta paid all her costs
would be this type of money payment.
Profit
5. Sergio regularly deposits money in his savings account at a local bank. The
bank lends a portion of Sergio’s money to other customers. The customer
must repay the loan plus an additional amount for using the money, some of
which is deposited into Sergio’s account. Last year, Sergio earned $5 from
these extra payments. The $5 he earned would be considered this type of
money payment.
Interest
6. Giant Telecommunications Company received $2 billion from the sales of
goods and services last year and had $1.9 billion in costs. The $2 billion
would be this type of money payment.
Revenue
7. Consider questions 16 in this section. What total dollar value do you get by
adding together the money payments that would be included in the
calculation of the national income accounting formula?
$65,205,
W=$60,000, I=$205,
R=$0, P=$5,000
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Do you know the flow?
Find a circular flow model below with some of the labels missing. Answer the questions using the
numbers from the image. To answer correctly, pay close attention to the subject and verb in each item.
Scenarios
Arrows
1. Famous Person Clothing Inc. sold designer shirts at a department store.
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2. Developers “R” Us hired five new computer programmers.
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3. Josef spent $25 for a meal at a local restaurant.
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4. Crabapple Farms Inc. rents its orchard for $50,000 per year.
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5. Lydia received her senior portrait photographs from Snapshot Photography.
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6. Crazy Coaster Theme Park received $100,000 in ticket sales last Friday.
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7. Jasmine, a recent graduate with a PhD in economics, applies for jobs with the
government, universities, and international nonprofits.
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8. Cory earns $15 per hour from his summer internship program.
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4
5 7
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8
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