Write a 500-word essay explaining the government roll
in the circular flow model

The circular flow of economic activity is a model showing the basic economic relationships within a market economy. It illustrates the balance between injections and leakages in our economy. Half of the model includes injections, and half of the model includes leakages. The circular flow model shows where money goes and what it's exchanged for. The model includes households, businesses and governments. We also have the banking system that facilitates the exchange of money and, as we'll see in a minute, helps to productively turn savings into investment in order to grow the economy. In the circular flow of the economy, money is used to purchase goods and services. Goods and services flow through the economy in one direction while money flows in the opposite direction.

The circular flow model shows the balance of economic injections and leakages

Circular Flow Model

The factors of production include land, labor, capital and entrepreneurship. The prices that correspond to these factors of production are rent, wages and profit. People in households buy goods and services from businesses in an attempt to satisfy their unlimited needs and wants. Households also sell their labor, land, and capital in exchange for income that they use to buy goods and services that firms produce. Businesses sell goods and services to households, earning revenue and generating profits. Businesses also pay wages, interest and profits to households in return for the use of their factors of production. Governments levy taxes on households and businesses in order to provide certain benefits to everyone.

Explanation:

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