Misunderstood – Flushing the toilet analogy

A response to the Misunderstood Activity
created by Tom Honey (@thoney)

Number of views: 376

Having instructed MacroEconomics I have found that the concept of the circular flow of money as a main concept for the students to understand a hit or miss for understanding.  The circular flow demonstrates how MacroEconomics is simplified for us in a diagram with short descriptions of the flow of money between households and businesses with the Government playing its key part by participating in the flow of money.  This is important as it is a foundational piece of the puzzle in understanding how households, businesses, and the government interact to impact/influence the economy of the whole country.

The analogy I used is a flushing toilet.  The flow of money and resources is in a circle, as the economy expands (higher GDP) this circle also expands in GDP$$, however, in a recession, the economy shrinks which I relate to the flushing of a toilet and the term “the economy is going down the toilet” which results in some laughs from the students and their attention.  I use the main concepts of the Households, Businesses, and Government in explaining how a recession reduces or “flushes” the toilet and how each of the three is impacted and how each can respond to this.

I break each of the three down into a separate discussion on the grand flush of a recession and how each one can/often responds as it relates to the content of the course.

This has been successful in reducing the misunderstanding of how important this concept is and how it will be an important concept to understanding the content as we get into more detail on each of the three (household, business, government) has a role to play in the MacroEconomic (whole country) response to a recession.