Economics Grade 12: Circular Flow-Closed Economy


Good day Grade 12's and Welcome to our Lesson on The Circular Flow in the Economy!

Today we will be discussing the participants of the circular flow and how they impact economic growth, but before we start with that here is a quick definition of the circular flow:

The circular flow model shows us how the economy functions by illustrating the relationship the economy between production, income, and spending. As consumers we have to make choices as there are scarce resources to satisfy our limited needs and wants 

Macroeconomics explains how the economy functions as a whole while microeconomics explains how particular and specific elements of the economy operate, for example, importers, consumers ,etc


Now that you know what the circular flow is please watch the following video to get a background of how it existed 

The lesson is to give you insight on the circular flow and how it impacts economic growth in both the long run and short run



1. List the four participants that influences the flows of production, income and expenditure. (8)

2. Explain what is meant by the term household in economics and why are they important within the economy?(4)

3. Explain what is meant by leakage in economics.(2)

4. How does a leakage in the economy effect economic growth and why is it important to keep the economy stable?(4)


Please look at the following resources and links to complete the given activity

The Circular Flow of Economic Activity

  •                The circular flow

  •          Participants of the circular flow

  •         Understanding economic growth in relation to the circular flow

  •          The economic growth impact of the circular flow


While reading the resources and watching the videos pay attention to certain terms and make notes which will help you with answers for your activity











All information represented in a clear, accurate and thorough manner.

Most information presented in a clear, thorough manner

Most information clear, but not accurate or thorough

Information had several inaccuracies or was not clear

Use of facts

Every point was well supported with several relevant facts and examples.

Every point was adequately supported with relevant facts and examples

Every point was supported with facts and examples but the relevance of some was questionable

Every point was not supportable

Understanding of topic

Clearly understood the topic in depth, presented information convincingly.

Clearly understood the topic and presented information with ease

Seemed to understand the main points of the topic and presented those with ease

Did not show an adequate understanding of the topic


Following assignment instructions

All instructions were followed

You followed most of the instructions

You followed some of the instructions

None of the instructions were followed


By the end of this lesson, you should be able to:

  1. Define the different participants in the circular flow
  2. Differentiate between the different participants and their roles within the circular flow
  3. Distinguish between a leakage and injection in the economy 
  4. Analyze how important both leakages and injections and important in the circular flow are in order for the economy to grow


Now that you know about the circular flow and how it impacts economic growth in a closed economy , in the next lesson we will discuss the circular flow in an OPEN ECONOMY.

Please visit the site above for the next lesson 



  • Banque de France - Cité de l'Économie et de la Monnaie, in partnership with Universcience (This film was presented in 2013 at the exhibition "All you need to know about eco­nomics" At the Cité des sciences). [Accessed 27 May 2021]:The Circular Flow of Economic Activity
  • [Accessed 27 May 2021]

  • Jason Welker explaining the participants of the circular flow [Accessed 27 May 2021]

  • Khan academy explaining economic growth in relation to the circular flow [Accessed 27 May 2021]

  • HTML explaining the whole flow [Accessed 27 May 2021]

  • Introduction to next lesson explaining an open economy [Accessed 27 May 2021]
Teacher Page

The reason we are doing the closed economy with the circular flow first, is to get you into the micro view of how things works in the economy before we analyse how things work with trading. Hence, the slight introduction to leakages and injections , even though that fits into open economy. This also helps you to focus on each participant and analyse their speciifc roles within the economy

The assignment will help you to understand the effects that these many factors has and how it impacts the economy. 

Ms Chante Van Wyk