QUEBTION 2 THE ECONOMIC CYCLE 21 marks 2.1 The resiflow refers to the flow of factors of produetion and the flow of goods (2) and services. What does this mean in practioe?

In practice, the resiflow illustrates the interconnectedness of an economy. It means that factors of production, like labor and capital, move from households to businesses, where they are used to produce goods and services. These goods and services then flow back to households, resulting in consumption and expenditure which keep the economic wheels turning! Understanding resiflow also highlights the importance of feedback loops in the economy. For instance, when consumers increase their spending, businesses respond by hiring more workers or investing in production, which can lead to economic growth. Misunderstanding this can lead to issues like overproduction or labor shortages, making it crucial to grasp how these flows interact.