1. We’ll be looking at a model of an economy
This is an economic model that attempts to explain the real world.
This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important.
We start with something very simple, and gradually build a more detailed and complex model. So, while we get closer to reality, it is still only a model.
This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important.
Looking at a model of an economy
This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important.
CLICK real train
CLICK simple toy (start with the basics)
CLICK more detailed and complex
CLICK getting closer to reality, but still a simplification.

2. How does our economy work?
First, the productive sector employs resources (such as labour)
and uses them to create goods and services (output).
the Firm
(CLICK) “How does our economy work?”
(CLICK) “First, the productive…” animation begins (workers)
(CLICK) “and uses them…” (cars flow out)
(CLICK)…

3. How does our economy work?
Households consume these goods and services
and provide Firms with the resources (such as labour) that they require.
Households
“Households consume…” (cars flow in)
(CLICK) “and provide…” (workers flow out)
(CLICK) …

4. How does our economy work?
The activities of Households and Firms are linked.
Households provide resources to Firms
and earn income (such as salaries and wages) in exchange.
Firms
Households
Firms produce goods and services
which they sell to Households.
“The activities of Households…”
(CLICK) “Households provide resources…” (workers go)
(CLICK) “and earn income…” (dollars return)
(CLICK) “Firms produce…” (cars flow)
“which they sell…” (dollars flow)
(CLICK)…

5. How does our economy work?
Incomes
Resources
Households provide resources to Firms
and earn income (such as salaries and wages) in exchange.
Firms
Households
Consumer Spending
Goods & Services
Firms produce goods and services
which they sell to Households.
Resources and goods and services flow one way
These are called Real Flows because they are physical items
(CLICK) “Resources and goods…” (workers and cars flow, then turn into arrows)
(CLICK) “There are called Real Flows…”
(CLICK) “Money Flows go…” (dollars flow then turn into arrows)
(CLICK)…
Money Flows go in the other direction

6. How does our economy work?
It is made up of Real Flows and Money Flows.
This is called the Circular Flow Model.
Firms
Households
(Sectors move and flows start) “This is called the Circular Flow Model”
(CLICK) “It is made up of…” (arrows reveal)
(CLICK)…

7. The Circular Flow Model
This is called the Circular Flow Model.
It is made up of Real Flows and Money Flows.
Income
Resources
Firms
Households
Labels come up
(CLICK) “This is an economic model… …what is important”
(CLICK) TASK (click to go to slide 17)
Goods and Services
Consumer Spending
Task

8. The Circular Flow Model
Expanding the Model
Households and Firms are not the only sectors in the economy. Before expanding the model, we will simplify it by only using money flows from now on.
Income
Households
Firms
Resources
Goods and Services
Consumer Spending
(CLICK) “Expanding the Model” “ Households and Firms…” (real flows fade)
We know they are still there because we have the money flows Income and Consumer Spending. If the real flows didn’t occur, then there would be no money flow.
(CLICK)…

9. The Circular Flow Model
savings
So, there are two new money flows,
and investment.
The Financial Sector includes banks, insurance companies and other financial institutions.
Households save any income not spent with this sector
Firms go to banks to borrow funds for expansion: new factories, new machines or research and development. This is called investment.
Income
Consumer Spending
Households
Firms
Investment
Savings
“The Financial Sector…” (sector fades in)
“Households save…” (money flows)
(CLICK) “Firms go to banks…” (money flows)
“This is called investment”
(CLICK) “So there are two new flows”
“Savings” (labelled arrow fades in)
“Investment” (labelled arrow fades in)
(CLICK) TASK (click to go to slide 18)
Finance
Sector
Task

10. The Circular Flow Model
The Government in NZ accounts for over 35% of all economic activity.
It collects direct tax from households (PAYE)
as well as indirect taxes from firms (GST, excise taxes...)
Income
Consumer Spending
Households
Firms
Taxes
Taxes
Investment
Savings
“The Government…” (sector fades in)
CLICK to change pic
(CLICK) “It collects…” (household taxes flow)
(CLICK) “as well as…” (flow of taxes from firms)
(CLICK) to move on to next slide
Finance
Sector

11. The Circular Flow Model
This taxation revenue is then used to make transfer payments such as:
social welfare benefits to NZ’s most vulnerable citizens,
subsidies to business for merit goods such as medicines,
other goods and services such as police, hospitals, roading...
Income
Consumer Spending
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Investment
Savings
Government Spending
“This taxation revenue…” (sector fades in)
(CLICK) “social welfare…” (transfers flow)
(CLICK) “subsidies…” (subsidies flow)
(CLICK) “other goods...” (government spending flow)
(CLICK) TASK (click to go to slide 19)
Finance
Sector
Task

12. The Circular Flow Model
earning export receipts.
Another sector to add is the Overseas Sector.
Firms sell their products to foreign buyers,
is matched by a money flow, export receipts.
A real flow of exports
Savings
Investment
Finance
Sector
Income
Consumer Spending
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Exports
Government Spending
Export
Receipts
“Another sector to add is the Overseas Sector”
(CLICK) “Firms sell their products…” (cars flow)
“earning export receipts” (dollars flow)
(CLICK) “A real flow of exports...” (labelled arrows fade in)
(CLICK)…

13. The Circular Flow Model
Firms also import goods and services to use or sell.
The real flow of imports
is matched by the money flow, import payments.
Savings
Investment
Finance
Sector
Income
Consumer Spending
Households
Firms
Import
Payments
Taxes
Taxes
Transfers
Subsidies
Exports
Imports
Government Spending
Export
Receipts
(Export flow fades)
“Firms also import…” (goods and dollars flow)
(CLICK) “The real flow…” (labelled arrows fade in)
(CLICK)…

14. The Circular Flow Model
Our new model, showing money flows only, now looks like this.
Income
Finance
Sector
Households
Firms
Import
Payments
Taxes
Taxes
Transfers
Subsidies
Consumer Spending
Investment
Savings
Imports
Government Spending
Export
Receipts
(Imports flow fades)
“Our new model…” (dollars start to flow)
(CLICK)…

15. The Circular Flow Model
Our new model, showing money flows only, now looks like this.
Income
Finance
Sector
Households
Firms
Import
Payments
Taxes
Taxes
Task
Transfers
Subsidies
Consumer Spending
Investment
Savings
Government Spending
Export
Receipts
(Task arrives)
(CLICK) to go to slide20

16. End of slide show, click to exit

17. In which flow or sector would you classify the following?
Households
Firms
Income
Resources
Goods and Services
Consumer Spending
In which flow or sector would you classify the following?
A yacht
Goods/Services
The buyer of a yacht
Households
Money spent on a yacht
Consumer Spending
Timber for the decking
Resources
A yacht manufacturer
Firms
(CLICK) “In which flow or sector…” task
(CLICK) to bring up list
(CLICK) to reveal answers
BACK (click to return to slide7)
A boat builder
Resources
Wages paid to a boat builder
Income
ANSWERS
Payment for timber
Income
Profits from the sale of yachts
Income
Back

18. Savings can be defined as income not spent
Investment
Finance
Income
Consumer Spending
Households
Firms
Savings can be defined as
income not spent
Investment can be defined as
the creation of capital goods
Using these definitions, classify the following into one of the money flows:
Lee deposits money in the bank
Savings
Lee buys a van
Consumer Spending
LBJ Ltd buys a van
Investment
Lee buys shares in LBJ
Savings
“Savings can be defined…”
“Investment can be defined…”
“Using these definitions…” task
Items will come up
(CLICK) to reveal answers
BACK (click to return to slide10)
LBJ uses a share float to expand their factory
Investment
Lee receives his salary
Income
ANSWERS
Lee gets a dividend on his shares
Income
LBJ researches a new product
Investment
Back

19. Transfer Payments are a one-way payment with no exchange occuring.
Savings
Investment
Finance
Income
Consumer Spending
Households
Firms
Transfer Payments are a one-way payment with no exchange occuring.
Taxes
Taxes
Transfers
Subsidies
Government spending only refers to spending on goods and services when an exchange of funds for commodities does occur.
Govt Spending
Government Spending or Subsidy or Tax or Transfer Payment?
Unemployment benefit
Transfer Payment
Company taxes
Tax (from firms)
Free doctors visits for under 5s
Subsidy
“Savings can be defined…”
“Investment can be defined…”
“Using these definitions…” task
Items will come up
(CLICK) to reveal answers
BACK (click to return to slide9)
Road User Charges
Tax (from firms)
Working for Families payment
Transfer Payment
ANSWERS
Purchase of new desks for classrooms
Government Spending
Back

20. In which money flow or sector would you classify the following?
Import
Payments
Export
Receipts
Investment
Savings
Consumer Spending
Income
Finance
Sector
Households
Firms
Taxes
Taxes
Transfers
Subsidies
Govt Spending
In which money flow or sector would you classify the following?
The Leeming Family
Household
Noel Leeming Appliances
Firm
Noel Leeming goes to work
Income
Task come up
(CLICK) to reveal answers
(CLICK) to go to next task
Leigh Leeming buys a new fridge
Consumption
F&P builds a new assembly line
Investment
ANSWERS
F&P dish drawers are sold in Namibia
Export Receipts
Leigh’s new fridge is produced in Australia
Import Payment

21. JH Whittaker and Sons Ltd Payment for imported cocoa beans
savings
Copy this chart, then label the flows and sectors using the list below:
JH Whittaker and Sons Ltd
Payment for imported cocoa beans
Whittakers purchase a new grinder
Chocolate lovers
Westpac Bank
Income from exported peanut slabs
Ghana
Sante Bar purchases
Factory workers wages
blank Circular Flow comes up
The Circular Flow model may be drawn in a number of different ways and different lay-outs.
(CLICK) for task
Give time for students to copy
(CLICK) for list
Students could write answers onto board (give items a number?)