Agents in the Economy

Of course, in reality, there are thousands,even millions of different “markets” in the economy. But, it is necessary to aggregate data in macroeconomics. Aggregation means grouping things together so that we have a manageable amount of data.
We start defining the circular flow by defining four agents, or types of decisionmakers in the economy. Out of the literally millions of individuals who buy and sell in the economy, we aggregate them all together into four types:
Households (consumers)
Firms (producers of goods & services)
Government
ROW (which stands for rest-of-world: all the other people in the world not in this country).

Of course, in reality, there are thousands,even millions of different “markets” in the economy. But, it is necessary to aggregate data in macroeconomics. Aggregation means grouping things together so that we have a manageable amount of data.