Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a simple economy. Explain briefly the various parts of the diagram. 
Definitions:
Inventories
The complete list of items such as merchandise, raw materials, and finished goods that a company holds for sale or production.
Variable Costing
An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold and treats fixed manufacturing overhead as a period cost.
Year 1
Often refers to the first year of a business or financial operation, used as a baseline for comparing future performance or growth.
Fixed Manufacturing Overhead
The portion of manufacturing overhead costs that remain constant regardless of the level of production, such as property taxes on factory buildings or salaries of production supervisors.
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