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Why the circular flow is not an accurate reflection of economic reality

Why the circular flow is not an accurate reflection of economic reality This page discusses and explains why the circular flow does not accurately reflect economic reality. To begin with, the circular flow of economy is an economic model in which interactions between economic agents are represented as flows of money, goods, and services.

Understanding the Circular Economy: The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money.

Investopedia

The circular economy is not an accurate reflection of economic reality, in other words, it does not provide a complete picture of the economy. The circular economy doesn’t include:

• Government Sector
• Government Spending
• Taxes
• Financial Institutions such as banks
• Foreign sector such as imports and exports

For the circular flow economic model to be the true reflection of the economy, it will have to incorporate the government, financial institutions, and the foreign sector

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