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Circular Flow in the Economy

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Assignment 1.1 Forum Discussion: Circular Flow of the Economy

Anita Jones-QuiƱones

Jones International University

Economic Theory and Applications - MBA 502-UF

September 5, 2011

Circular Flow as the result of two initial transaction payments

This assignment will illustrate systems thinking skills showing how an initial transaction by one economic actor affects the households and public and private entities in the circular flow of the economy.

The Circular Flow of Economy portrays the flow of expenditures and economic activity of the economic actors in the macroeconomy (Farnham, p10). I will illustrate how the purchase of my home as a first time home buyer affected the circular flow cycle and other economic actors. The second illustration is the government offering opportunities for consumers to own property through the Housing and Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009.

I had to move a year and a half ago. The first time home buyers credit was the incentive for me to own piece of real estate. A home appraisal is required to appraise the property market value that is based on established methods and the professional judgment of the appraiser which is paid for by the seller of the property. Prior to my desire to purchase a house, I needed to get a pre-approval letter indicating my package to purchase a home was pre-approved by a lender to provide financing my mortgage to purchase a home. A mortgage company provides the financing to generate a home mortgage loan for which I have to qualify for. I enter the cash-flow of the economy when I establish an official relationship through a contract to act as my buying agent. The realtor's wage is three (3) percent of the sale which will be paid at the close of the sale of the house. The real estate broker negotiates the sale between the seller and buyer and takes at least 50 percent of the house sale. Once I chose a house to buy and entertained the seller's offer, I paid a good faith down payment. The good faith payment goes to the Seller at the close of the sale of the house. Once the offer for purchase is accepted by me, a home inspector is hired to conduct a visual survey of the property to be purchased that will assess the property's structure, functioning of its systems and condition of the home. The home inspector wages are paid by buyer. The sales contract is usually contingent on the home inspector's report. The seller has to agree to fix the discrepancies or lose the sale. The seller agreed to pay all closing costs and I had nothing to bring to closing. A loan officer, lawyer, title company, Pest Control Company, and ADT Security System Company received payment for their services from the buyer. Per the IRS, the $8,000 first time home buyer credit needed to be approved after submission of the form 5405 with my current year tax return. Once the credit approved and received, I used the credit to purchase my desired goods and services which provided income and revenue to the businesses I purchased the goods and services from. The money provided resources for the businesses to fund their wages, desired goods and service.

After the first tax rebate economic stimulus package of 2008, the Senate passed a housing bill that was envisioned to spruce up the housing market. The housing market was experiencing one in every 171 homes going into foreclosure. This was to help with the country's deficit reaching a trillion dollars. Those home owners that were spending greater than 31 percent of the monthly gross income on their mortgage debt between 2005 and June 2007 may qualify. The An interest free loan of up to $7,500 once approved by the IRS


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