Introducing the Circular Flow Diagram to Business Students

Abstract

The circular flow of income diagram is a simplified representation of the functioning of a free-market economic system. It illustrates how businesses interact with the other economic participants within the key macroeconomic markets that coordinate the flow of income through the national economy. Therefore, it can provide students of business with a valuable tool for understanding the economic environment in which businesses operate. The author argues that the circular flow diagram may be used as an element of support for embedding a wide range of fundamental economic concepts into the structure of business education. He also describes an interactive classroom activity that engages students in constructing the diagram.

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