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1 Leaders in finance, accounting and business advice Business Systems Circular Flow of Income.

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Presentation on theme: "1 Leaders in finance, accounting and business advice Business Systems Circular Flow of Income."— Presentation transcript:

1 1 Leaders in finance, accounting and business advice Business Systems Circular Flow of Income

2 2 Y = Income C = Consumption Expenditure S = Savings I = Investment T = Taxation G = Government Expenditure M = Imports X = Exports

3 3 Circular Flow - Simple ConsumersProducers Resources Goods and Services Consumption Expenditure Income

4 4 Circular Flow - Simple Assumptions: –Only two sectors - Consumers and Producers –All production is sold to the consumers –Producers provide all the Goods and Services –Consumers spend all their Income on goods an services –No government and no overseas sectors –Consumers are the owners of productive resource - land, labour, capital and enterprise

5 5 Circular Flow of Income Note: Total Output = Total Income = Total Expenditure O = Y = E

6 6 Circular Flow - Savings and Investment Y C Capital Market S I ConsumersProducers

7 7 Circular Flow - Savings and Investment Y = C + S O=C + I Y = O C + S = C + I Therefore S =I

8 8 Circular Flow - Government Sector Y GOVERNMENT TAXATION CAPITAL MARKET S I C SPENDING SUBSIDIES TAXATION Consumers Producers

9 9 Circular Flow - Government Sector Y=C + I + T for equilibrium S + T=I + G if S + T>I + G then the level of income will fall S + T { "@context": "http://schema.org", "@type": "ImageObject", "contentUrl": "http://images.slideplayer.com/265064/1/slides/slide_8.jpg", "name": "9 Circular Flow - Government Sector Y=C + I + T for equilibrium S + T=I + G if S + T>I + G then the level of income will fall S + TI + G then the level of income will fall S + T

10 10 Circular Flow - Four Sectors Y CAPITAL MARKET SI OVERSEAS SECTOR GOVERNMENT T M G X LEAKAGES INJECTIONS C ConsumersProducers

11 11 Circular Flow - Four Sectors National Income is determined by total expenditure: C + I + G + ( X - M ) also known as Aggregate Demand Equilibrium is achieved when Total Leakage = Total Injections: S + T + M = I + G + X

12 12 Leaders in finance, accounting and business advice Business Systems We wish to thank our supporters:


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