Economic agents and the circular flow of income

Name the three main economic agents and explain in one sentence the role of each in the economy. Give an example of each taken from your everyday surroundings.

What is the factors of production market within the circular flow? Explain who supplies and who demands labor in it, and give an example of a factor other than labor (rented premises, lent capital) with its corresponding market.

Topic challenge. The factors of production are labor, capital and land (or natural resources). Each one receives a different income: wages, interest or profits, and rent (or land rent).

1. a) Match each factor of production with the income that corresponds to it.

1. b) Give a real example, from your town or your surroundings, of each of these incomes (a wage, an interest or profit, and a rent).

What will be assessed: that the matching between factor and income is correct, and that each example is realistic and clearly corresponds to the factor of production it belongs to.

Distinguish between real flows and monetary flows, and classify the following: a cashier's work, their salary, the purchase of a computer by a company, and the bread bought by a household.

The figure shows the circular flow of income between households and firms, with four labeled flows.

1. a) Identify which flows are real and which are monetary.
2. b) Explain why the circuit can be viewed as a circle: where does the money "start" and where does it "end"?

Two markets appear in the circular flow: the goods and services market and the factor market.

1. a) Explain who supplies and who demands in each of these markets.
2. b) Place in the corresponding market: renting commercial space, a paycheck, and a supermarket purchase.

Distinguish consumption, investment and government spending within an economy's total spending, and classify: a household buys a washing machine, a bakery buys an industrial oven and the government builds a health clinic. Which of the three increases future productive capacity?

What is the foreign sector in the circular flow? Explain how flows enter and leave a country's circuit through exports and imports, with an example of each (selling oranges abroad, buying oil abroad).

What role does the government play in the circular flow? Explain where public money "enters" and "exits", mentioning taxes, public spending and public services.

Read this fictional news item: "A German company opens a battery factory in Ohio and will hire $200$ people from the local area".

1. a) Identify the economic agents that appear and the markets in which they interact.
2. b) Describe the real and monetary flows the news item generates (labor, wages, investment, products).

A household pays $\$400$ a month in taxes and Social Security contributions, and receives public services valued at $\$520$ (public school, healthcare, a free and reduced-price school meals benefit).

1. a) Place these flows in the circuit: where does the household's money leave and where does it "come back"?
2. b) Explain what the example shows about redistribution within the circular flow.

Draw (or describe in detail) the circular flow of income with three agents: households, firms, and the government.

1. a) What new arrows does the government add to the basic two-agent model (taxes, benefits, public purchases, services)?
2. b) Explain what happens to the size of the flow if the government collects a lot and spends little, or the other way around.

You can do it on paper and send a photo with your answer.

In the circuit, household saving is a "leakage" and firms' investment is an "injection". Explain what each term means using the analogy of a water circuit: where does the water leave and where does it come back in?

Households in a country decide to save a much larger share of their income.

1. a) Explain what "leakage" the circular flow suffers and what immediate effect it has on firms.
2. b) What "injection" could offset this leakage? Reason your answer.

Foreign tourists spend millions of dollars every summer in a coastal area; the area's hotels import part of the food they serve.

1. a) Is tourist spending a leakage or an injection for the U.S. economy? Where does it enter the circular flow?
2. b) And the food imported by the hotels? Explain how the two things partially offset each other.

A household buys a car made in Spain for $\$25,000$, a significant part of which corresponds to imported components.

1. a) Trace which part of the price keeps circulating through the Spanish economy and which part leaves the circuit (leakage through imports).
2. b) Explain why it is in countries' interest for their products to have a high "domestic content".