Macroeconomics
Case Study-I: The Circular Flow Diagram
Name: ID:
What is Circular Flow of Income?
Economists create models to illustrate economic activity. The circular flow means the unending flows of
production of goods and services, income and expenditure in an economy. It shows the redistribution of income in
a circular manner between the production unit (firms) and households. This activity will help you analyze these
relationships using the PowerPoint (week-1) that accompanies it.
Who’s in the flow?
Use the information from your PowerPoint (week-1) to answer the following questions. For each of the scenarios,
you should identify:
a. the role of the person: buyer OR seller; the market: resource OR product
b. the sector: household OR firm
c. the sector receiving the money payment: household OR firm
1. Saima Sports sells a soccer ball to Ahmed. What can you tell about the transaction?
a. Ahmed was the Buyer of the soccer ball in the Product market.
b. Ahmed is part of the household sector.
c. The money used in this transaction was paid to the Firm sector.
2. Ahmed has a large rural property where he grows Apple trees and sells them to "Taha"
Company. What can you tell about the transaction?
a. Ahemd was the Seller of the land and trees in the Resource market.
b. Ahemd is part of the Household sector.
c. The money payment in this transaction went to the _ household sector.
Page 1 of 2
Case Study-I: The Circular Flow Diagram
Name: ID:
What is Circular Flow of Income?
Economists create models to illustrate economic activity. The circular flow means the unending flows of
production of goods and services, income and expenditure in an economy. It shows the redistribution of income in
a circular manner between the production unit (firms) and households. This activity will help you analyze these
relationships using the PowerPoint (week-1) that accompanies it.
Who’s in the flow?
Use the information from your PowerPoint (week-1) to answer the following questions. For each of the scenarios,
you should identify:
a. the role of the person: buyer OR seller; the market: resource OR product
b. the sector: household OR firm
c. the sector receiving the money payment: household OR firm
1. Saima Sports sells a soccer ball to Ahmed. What can you tell about the transaction?
a. Ahmed was the Buyer of the soccer ball in the Product market.
b. Ahmed is part of the household sector.
c. The money used in this transaction was paid to the Firm sector.
2. Ahmed has a large rural property where he grows Apple trees and sells them to "Taha"
Company. What can you tell about the transaction?
a. Ahemd was the Seller of the land and trees in the Resource market.
b. Ahemd is part of the Household sector.
c. The money payment in this transaction went to the _ household sector.
Page 1 of 2
