Use the circular-flow diagram to explain how an increase in the amount of money spent by households results in an increase in the number of jobs in the economy.

Describe in words what the circular-flow diagram predicts.

Circular flow diagram

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This diagram represents the flows of money and of goods and services in the economy. In the markets for goods and services, households purchase goods and services from firms, generating a flow of money to the firms and a flow of goods and services to the households. The money flows back to households as firms purchase factors of production from the households in factor markets. Markets for goods and services Money Goods and services Goods and services Money Households Firms Money Factors Factors Money Factor markets