Chapter 2 focuses on "Thinking Economically" and introduces economic models as simplified representations of the economy using variables and relationships to explain processes. A key model discussed is the circular flow diagram, which illustrates the exchange of goods, services, and money between h...
● Economic Model:
○ A simplified representation of the economy that uses variables and logical
or mathematical relationships to illustrate an economic process.
THE CIRCULAR FLOW DIAGRAM
● Definition:
○ An economic model that displays the exchange of goods, services, and
money between economic agents such as households, businesses,
governments, and financial institutions.
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