The Circular Flow of Income
- Created by: Oreo Costa
- Created on: 13-02-18 15:26
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- National income: measures the flow of new output produced in the economy by measuring the incomes received by labour & other factors of production when producing the goods & services.
- National output: measures the flow of new output produced in the economy by measuring the actual goods & services produced by the economy.
- National expenditure: measures the flow of new output produced in the economy through the spending of these incomes on the goods & services.
- (Above) are 3 different ways of measuring the same thing (the flow of new output), therefore: national income = national output = national expenditure.
- At full employment (i.e. when everybody of working age who wants a job at current wage rates has one), national income, national output & national expenditure are all equal to the "full-employment income".
The Simple Circular Flow of Income (Closed Economy):
- A simple circular flow model assumes that there are just two sets of economic agents: households & firms. This is a model of a closed economy with no gvnmt sector.
- There are 2 flows: 1) A physical flow (shown by straight arrows)…
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