As the first model of the macroeconomy that every economics student meets, this diagram gets the privileged ‘first lick’ of the beginner’s tabula rasa, as Samuelson so gleefully put it. So what message does this model convey about which actors count and which to ignore when it comes to economic analysis? Centre stage is the market relationship between households and business. Households supply their labour and capital in return for wages and profits, and then spend that income buying goods and services from firms. It is this interdependence of production and consumption that creates income’s
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