Flood Econ DB


An economic circular flow diagram, as the name suggest is anillustration which shows how goods and services move from point tothe other in a country or an economy. Ideally, good and services willmove from the suppliers and the manufacturers to the end users or theconsumers. In the explanation of this phrase, it is essential topoint out that the produces, who supply the goods, are known as thefirms (Dodd &amp Hasek, 2011). On the other hand, the consumers, whoare the people who use up the goods and the services, are called thehouseholds. In economic circular flow, the households are said to bethe providers of land, labor and the capital to the firms. Householdsreceive goods and services from the firms in exchange for theirexpenditure.

The economic circular flow diagram views the GDP in three equivalentways. The flow of money is between the households and the firms. Whenhouseholds purchase goods and services from the firms, it becomespart of the GDP. Additionally, the firms purchase labor, land andcapital they pay the households (Dodd &amp Hasek, 2011). This isanother form of GDP. Lastly, the goods and services being exchangedby the two entities are taxed and therefore the government levy formspart of GDP. There has been a worldwide debate over whether the GDPis the best measure for a country’s economic strength. It isevident from various studies that majority of the people seem toagree that GDP is not the best measure. It is evident that thestrength of an economy cannot be measured through monetary termsalone (Glanville &amp Glanville, 2011). Despite this, the GDPassumes that the non-monetized activities in a country do not accountfor anything in terms of economic strength. Additionally, GDP doesnot look into the future prospects of GDP. It is vital to measure thenon-monetary aspects in an economy such as access to education,healthcare, and opportunities for personal growth, happiness andtolerant communities. The best measure of a country’s economicstrength must put into account the above aspects.


Glanville, A., &amp Glanville, J. (2011).&nbspEconomics from aglobal perspective: A text book for use with the IBdiploma economics programme. Dolton: Glanville Books.

Dodd, J. H., &amp Hasek, C. W. (2011).&nbspEconomics: Principlesand applications. Cincinnati: Southwestern Pub. Co.

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