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The Simple Economic Diagram

By Bernard

The extremely simplified diagram shows the unidirectional relations of production, consumption, import and export. In the real economy.  They are the same elements that work, but on a different scale and with more constraints.

This second diagram relates the households (here, the diagram shows worker) and its production unit or institution (here, the diagram shows factory), while showing a first consumption and distribution greatly simplified.  So we have now two agents:

  1. Worker (Travailleur)
  2. Factory (Usine)

and finally we also have two markets:

  1. Production and
  2. Consumption,

With the distribution between them.

The diagram of the sinple economy, my own creation (1971)

This simple economic model can still establish the first four relations and the first four economic circuits.

The relationships are the links between two economic agents while the circuits allow interaction between agents, interactions that influence the two agents  both ways.  So let'sstart by asking the right questions:

  1. The Origin of the Economic Activity<
  2. The Foundations of Economic Activity<
  3. The Four Fundamental Relationships<
  4. The First Four Circuits<
    1. The Output Circuit
    2. The Consumption Circuit
    3. The Physical Circuit of Goods and Services
    4. The Simple Monetary Circuit

Before introducing savings and investment.