Grappling with the concepts of the circular flow model

A really fundamental model in Economics is the concept of the circular flow and the basic economic system. We use this to help explain the main sectors of the economy and the flows of money between the different component parts. Overtime students come back to this model to help analyse government policy, the ideas of interdependence in terms of open and closed economic systems.

It is a fairly abstract idea but the concept of money flow and sectors is an important one and something we all try to unpack in different ways. With Phil Woolrich and his Grade 11 class, we looked at a nifty online tool (Loopy by NCase) to help develop student understanding of a closed and open system. Our beginning was an illustration of an analogue model of an economy which uses water to illustrate the flow of money. The idea of taking an abstract idea and creating a tangible metaphor is something we wanted to explore with our students.

Phil proceeded with a mini-lesson on the component parts of the model, beginning with the households and firms and then adding extra parts of the economy (financial sector, government sector and then the overseas sectors and trade). They had a chance to take notes on this while we explained the concepts.

To finish off we let the students take their knowledge from the mini-lesson and try create a model similar to the water analogy. We used Loopy as a digital tool to illustrate the interconnectedness of the circular flow diagram. There is no precise way to draw this model so it was interesting to see different interpretations of the model, all showing the same ideas.

My sample diagram is below with other student examples in the links below. You can interact with these models and change the variable, but for some reason I can’t get them embed correctly onto this blog.

From a teacher perspective I think it works ok to help illustrate the connections and flow of money but the way the arrows work on each sector is a bit misleading. When I click to increase the financial sector I am increasing the rate of investment, which flows into other sectors… but I should really be changing the interest rate. The way that taxes work also feels odd. You can change the way the arrows work to either increase the next circle (+) or to decrease it (-) you can also set the default size of circle to begin with. It does have lots of application but need to have a bit more of a play. Students really like the experience as it is one of these instant feedback, iterative tools. They can draw and change directions and just testing how it works to improve their thinking. They can save the link to come back to improve later or click on someone else’s and the remix button to adapt.

A really good blog post on the tool to support systems thinking and the environment is here. Plenty of inspiration ! If you try the tool and think of other applications please comment below. Our Geography and Environmental Science teachers have lots of ideas.