1. Name a way that your family interacts in the factor market, and a way that it interacts in the product market.
2. Name one economic interaction that isn’t covered by the simplified circular-flow diagram.
Answer
My family participates in the factor market by providing our labor. For instance, my parents have jobs and earn wages for their labor. We also transact in the product market as consumers. For example, we frequently purchase food, apparel, fuel as well as numerous other things.
A nonfinancial transaction not shown in the circular flow diagram is financial investments. My family invests in savings accounts, retirement funds and stocks. This refers to engaging capital markets by purchasing financial assets and getting interest/dividends instead of goods or services consumption immediately . The circular flow depicts the transfer of money to current spending yet does not allow for savings and investments, which withdraws finance from product market.
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