homework help 6181

The model reflect interdependence by showing that what is spending for one agent is income for another.

The circular flow model, in which families spend money in goods and services and receive money as wages, and firms receive the money spent in goods and services as income and spend money buying goods and services it needs from other firms and paying wages to its workers. More steps can be added in this most simple model, but the idea remains the same.

For more advanced studies, I suggest the great book Production of Commodities by Means of Commodities, by Piero Sraffa. Sraffa shows that the circular model can be brought even further, making it possible to visualize which commodities produced are essential to the functioning of the economy and in what proportion, and therefore revealing structural interdependencies within the economy.

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