In Sync with Circular Flow | Cash Course | PragerU

[Music] What seems to be the problem, sir? We've run out of ideas, sir. Jackson, suitcase. But sir, this hasn't been fully tested. There is no time, son. We've only got 5 minutes. Ready? 3 2 1 [Music] Cash course boys. We're back. Let's go. Let's go. Let's go, baby. What are we dropping today, bro? Circular flow model, baby. Hold up. You mean the tool that maps out how goods, services, and money flow continuously between key players in an economy? That's the one. Cool. You boys ready to break it down? Totally. Observe. 3 2 1 and go. The first players are households. That's you for show. Households are the everyday Joe's. People like you who bring the factors of production like land, labor, and capital to make goods and services. They get paid, then take that cash and buy the things they need. The next players are businesses. That's you. All right. Yo yo yo. These are companies who take those factors of production and use them to make goods and services. They'll make a pretty penny selling what they've produced, then flip that revenue to pay for more factors of production. This keeps the whole process rolling. These exchanges go down in the resource market and product market. The resource market is where households supply the factors for production to businesses to make their goods and services. And in return, businesses got to pay the households. How do they do that? Wages for labor, rent for land, interest for capital. Word. On the flip side, the product market is where finished goods and services are sold. Households buy what the companies sell, lining their pockets with fresh revenue. This keeps businesses running, fueling the whole cycle to start again with the purchase of more factors of production in the resource market. What about the government? The government is a big player for show, taking its cut from everyone in taxes. But that money has got places to go. Pumping it back into the economy through things like public services, subsidies, and transfer payments. Now, financial institutions. Oh, yeah. Financial institutions also keep the money flowing. They accept deposits from households, businesses, and even the government. But the money's not locked up getting dusty. Banks are all about that action. Giving loans and paying interest. Need a credit card? Leveling up your business. They're on it. Even the government's calling them up to fund big public projects. Dudes, bosses, it's time for an example. Ready? Let's kick things off with our friend Joe, a household. He's hustling at Beat City, a local instrument store putting in those 9 to5 hours. That right there is labor, baby. One of the factors of production in the resource market. Beat City pays Joe wages for his work. Now Joe's got the cash to buy what he needs from other companies like clothes, gas, or groceries. Bye bye bye. The government hits Joe with income taxes. That's whack. And beat city with corporate taxes. Double whack. Chill, y'all. Some of that money slides back out, funding public services that help both Joe and the business, like fixing the roads or keeping the peace with the police. The flow doesn't stop there, fam. Workers like Joe and businesses like Beat City stash their cash in a bank to save up. When Beat City needs a new building space, the bank loans them the dough. When Joe wants to buy a home or car, the bank can hook him up, too, by letting others borrow for those big buys. Banks keep the economic rhythm moving. Keep it moving. Every player from Joe to beat city and the government to the financial institutions is in sync with the beat of the economy. Big or small, everyone has a role to play in the movement of money, goods, and services. The economy can seem pretty complicated. But if you break it down to the basics, you'll see the patterns that control the flow of money, goods, and services. By understanding the circular flow model, we can see the bigger picture of how an economy works and how everyone plays a part. All right, guys. Time for the grand finale. 3 2 1 Cash course, boys. The boys did it. I can't believe the boys came through. Watch more at pragerukids.com and your parents. Don't forget to subscribe for show.