Reference no: EM131271433

"Economic models display a simplistic version of reality that is easily understood. Only the most important aspects of the prediction or the assumption at hand are included in the model (McEachern, 2017) allowing for the complication due to too much unnecessary information to be eliminated. Using these models help economists by adding a "picture" or visual effect of sorts to their ideas regarding predictions and assumptions rather than just vocal reasoning. Using these models helps to gain a much more clear understanding and much easier by only focusing on the relevant information rather than having a "cloudy" vision due to all of the additional information that is not needed to make a decision.

Circular flow diagrams, as stated in Macro Econ 5, Principles of Macroeconomics, "traces the flow of resources, products, income, and revenue among economic decision makers" (McEachern, 2017) this means that a person is able to determine where their money goes, how much goes to each place, and how it is used. Since I have no need for the production possibility frontier or the supply and demand models which are focused more toward businesses, the circular flow diagram would be most beneficial to me at this time. Utilizing a circular flow model, I would be able to determine how much money I bring into my home, what it is used for, where it is spent in the community and abroad, and how much I would have to put away."