“Diagram of Circular Flow Between Economic and Natural Systems” — Measuri ng Sustainability of an Economy

Abstract: To estimate values of gross domestic products (GDP), economists developed the circular flow of income in macroeconomics. GDP measurement based on this diagram is only used to evaluate the rate of economic growth for each country, which does not consider environmental aspects of sustainable development, including natural resources and the environment. This paper, the author built “Diagram of circular flow natural system” and combined with “Diagram of circular flow economic system”. The combination of these two diagrams generates an innovative circular flow between natural and economic systems. It is called “Diagram of circular flow economic and natural systems”. Different parts of this diagram represent an integral system containing multiple indicators measured in monetary values. All the economic and environmental indicators built by the diagram can be estimated by the national accounting system. This diagram can be used to measure sustainability, examine economic development trends, and estimate economic values for the environment.  

Key words: circular flow of economic and natural systems; characteristics; applications

JEL codes: M110, M1