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circular-flow diagram a visual model of the economy that shows how dollars flow through markets among households and firms macroeconomics the study of economy-wide phenomena, including inflation, unemployment, and economic growth microeconomics the study of how households and firms make decisions and how they interact in markets normative statements claims that attempt to prescribe how the world should be positive statements claims that attempt to describe the world as it is production possibilities frontier a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology