The Flow of Money
Discover how it works.
The Circular Flow Diagram
The circular flow of income is a economic model depicting how money flows through the economy. In the most simple version, the economy is modeled as consisting only of households and businesses.
There are three main functions of money.
- Store of value
- Measure/Standard of value
- Medium of exchange
- Store of value can retain or hold value or worth over time.
- Measure/Standard of value can be used to calculate or measure worth.
- Medium of exchange is used as a method to trade goods and services.
Even though money is the most efficient way to buy and sell things; there are also other ways to trade, such as voluntary exchange and bartering.
There is also a place to buy, sell, and trade, this place is called a market.
These three words are explained below:
Voluntary Exchange
Process that occurs when people specialize in producing one good or service and then trade for another good or service.
Market
All of the companies that sell one particular good or service.
Barter
A way of trading without using money.
Bartering and voluntary exchange are great ways to exchange but, money is the best and most efficient way to go! 😊😁😊😁