What does it mean to refer to the economy in the United States as?

Question

as “a circular flow” of “incomes” and “expenditures”? What is the role of government under such circumstances?

Answer 1

That the economy is like the ocean, a series of ebs and flows, cyclical. At times the economy is high (like the high crest of a wave) and when the economy is low, crashes, or makes a correction ... the economy is like the low trough of a wave.

Government has a hard time directly effecting the economy. There can be incremental changes made to interest rates in order to keep inflation in check. But for the most part, the economy is a larger animal than a single government can tame. Especially in the age of global markets. If there is a dramatic change in the economy, the time tested way to handle it is to wait it out. Economies correct themselves naturally and will eventually find an equilibrium.

Answer 2

For purposes of this question, think of the economy of the US as a closed loop, like a circuit. Money flows around this circuit from point to point, each point being an individual, business or governmental entity. An individual with a job will receive an income in return for the value of the time he spent at the job. Be cause he has bills and other financial obligations, he must in turn expend part of his income on those. He may (If he is wise) save or invest a portion of his income. This money does not sit idle, it is loaned out to entrepreneurs starting new businesses, or companies that need capital for expansion. Businesses take in money (income) in return for goods or services rendered, and pay the costs incurred in providing them (expenditure), hopefully leaving something left over as profit. Everyone pays taxes, which go to various levels of government. You can think of all these participants in the economy as 'money pumps' of various capacities. The Federal Government has the biggest income and the largest expenditure of all. It is the biggest pump. Additionally you can think of it as a pump with a large control valve, because the government influences the flow of money through the economy in several ways. It creates regulations on people and businesses. It controls (or doesnt) its own spending, for example if the economy goes into a serious recession (or depression) it can borrow money and inject huge sums of cash into the economy via deficit spending. For an example, search for info the 'The New Deal' during the early 30's which helped America begin overcoming the depression. The biggest way it influences the economy is through the Federal Reserve System (The Fed).
All banks are tied into the Fed, and when they need money, they usually get it from the Fed, which loans it to them at the Prime Interest Rate, which is set by the Fed. In turn the banks base their lending rates a bit higher than Prime, so as to make a profit. When the economy slows down toward or into recession the Fed will lower rates. Banks follow suit, which makes the money cheap and attractive to those seeking capital for investment. When the economy starts growing quickly, inflation can become a problem, so the Fed may start raising its rates slowly (it meets every 6 weeks). Banks raise rates in turn and the cost of money rises, discouraging further growth.

Answer 3

http://www.socialstudieshelp.com/Economics_Circular_Flow.htm
The sectors of the economy feeds each other. Households (consumers) provide businesses with payments in exchange for jobs and goods and services. Government provides consumers and businesses with payments in exchange for goods and services from business and taxes and resources from consumers.