CIRCULAR FLOW MODEL AP Macroeconomics Ms. LaRosa

THINK ABOUT IT…. Do people/households need businesses? OR Do businesses need people/households?

BRAINSTORM? Is there a simple solution to their problem? What do you think? How would you approach this homework assignment?

EXPANDING YOUR KNOWLEDGE In your group, one member has received four clues for the problem to be solved. Distribute the clues equally, so that each member has 1. Each member should read and explain one clue at a time. Discuss the clue with your group members. Indentify how the clues relate and how they could be grouped together. Group the clues together. Look for cause/effect relationships. Based on this hypothesis, create a graphic organizer that explains how households and businesses interact in the market economy.

SCENARIO A Sam is a carpenter, working for a local construction company. The construction company pays Sam an hourly wage. Sam spends his money purchasing a range of items such as food, clothing, cleaning items, tools, appliances, etc. at various stores, which will forward a portion of the payments made by Sam to the factories that produced the purchased goods.

SCENARIO B One of the stores at which Sam shops is “Publix.” This food chain buys meat products from Boar’s Head, a meat-processing plant. Boar’s Head purchases meat among other meat producers from local farmers, such as Smith Farm. Sam’s uncle works at the Smith Farm as a mechanic and receives monthly wages from the Smith family. The Smith Family also rents 150 acres from Sam’s uncle, who in return receives a quarterly rent payment for it.

SCENARIO C Sam’s girlfriend, Susan, works at a local pharmacy store, which pays her a monthly salary. She just brought a new refrigerator for her apartment at Home Depot, which was produced by GE. Sam has a different connection to Home Depot and GE. Two years ago, he brought some stocks from these companies. Now he receives semiannual dividends from this corporation. In addition, Sam has a CD that will mature in six months and pay him 3% interest.

SCENARIO D While working on the Smith Farm, Sam’s Uncle Tom had an idea of how to feed cows according to their BMI in order to increase the farm’s milk production. The farmer permitted Tom to experiment with his idea on a part of the herd. They were amazed by the results since each cow gave on average one additional gallon of milk per day. Tom and the farmer patented the idea and receive now, next to higher profits, also royalties from the patent.