Every dollar you spend goes somewhere — and eventually, it comes back around. Scroll to follow the money through the whole economy.
Chapter 1 · Spending
Meet the two main characters: households (everyone who lives somewhere and buys things — you) and firms (every business that sells something).
When you buy groceries, a haircut, or a phone, money flows from households to firms. Economists call this consumer spending. Blue is money on the move.
Chapter 2 · Income
Firms don't keep the money. They use it to pay wages to workers, rent to landlords, and profit to owners — all of whom are households.
So the same dollars flow right back to where they started. That's why it's called the circular flow: spending becomes income, and income becomes spending. Round and round.
Chapter 3 · The other current
Against every money flow runs a flow of real stuff in the opposite direction. Orange is the real economy.
Goods and services travel from firms to households; work and effort travel from households to firms. Two currents, opposite directions, same roads. When people say "the economy," they mean both loops at once.
Chapter 4 · Government
Some money leaks out of the loop as taxes, paid by both households and firms.
But it doesn't vanish. The government injects it back by buying things — roads, schools, fighter jets, teachers' salaries. A leak out of the circle, and an injection back in.
Chapter 5 · Banks
When you save part of your paycheck, that money also leaves the spending loop — another leak.
Banks don't let it sit idle, though. They lend it to firms to build factories, buy equipment, and start projects. Your savings re-enter the flow as investment. Leak out, inject back.
Chapter 6 · The rest of the world
Buy something made abroad — an import — and your money sails out of the domestic loop.
When foreigners buy things made here — exports — their money sails in. One last pair: imports leak out, exports inject back in.
The whole picture
This is the entire machine: households and firms trading money for goods and work, with three side-doors — government, banks, and the rest of the world — each taking money out and putting money back in.
Every economics course starts here, because every question in economics — recessions, inflation, taxes, trade — is a question about what happens to this circle.
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