The movement of spending and income throughout the economy.

Slides:

Advertisements

Similar presentations

Introduction to Macroeconomic Concepts

Advertisements

Economics: Notes for Teachers

Warm-Up/Review What is the difference between GDP/GNP? What are the two methods for measuring each? List the 3 Macroeconomic goals. What is the main purpose.

The Circular Flow Model

9 The Economy and Business Activity 9 The Economy and Business Activity.

Money is the measure On the other hand… Macroeconomics is the study of how the economy operates as a whole – more than simply the sum of all markets.

Chapter 7 Highlights.  Households ◦ sell resources in the resource market ◦ buy products in the product market  Businesses ◦ buy resources in the resource.

Introduction & The Expenditure Approach

Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 15-1 PART 7 THE CIRCULAR FLOW AND.

The open economy circular flow model The markets National account aggregates and conversions The multiplier: – Definition of multiplier effect – explanation.

How money changes hands!.  In the Circular Flow Model there are 2 groups:  Households (the people)  Firms (companies and businesses)

Copyright 2006 – Biz/ed The Impact of Government Policy on Business BTEC Business.

 Product Market: This market consists of households/individuals/ consumers  Resource/Factor Market: consists of businesses/firms who produce goods and.

The Circular Flow Spending Goods and services bought Revenue Goods and services sold Labor, land, and capital Income = Flow of inputs and outputs.

Circular Flow Chapter 2-3.

ECON2: The National Economy

Circular Flow. Notice that goods & services and resources flow around the economy in one direction, while money flows around the economy in the opposite.

Circular Flow Model The Circular Flow Model describes and captures how the economy interacts with one another!!!

Chapter 8 The Circular Flow Model © 2003 South-Western College Publishing.

Circular Flow of Income AS Economics. The circular flow (simple)

Circular Flow of Income

Objectives Analyze a circular flow model of a pure market economy.

Net Exports Tom, Dean and James. Aggregate Demand Aggregate Demand = Consumer Expenditure + Investments + Government Spending + (Exports-Imports) The.

Measuring National Income and Output

Circular Flow in a Market Economy

Economic Issues: An introduction

Learning Objectives: Measuring the Economy LO1: Understand the circular flow of national income LO2: Explain the concept of equilibrium and why national.

Modeling the Economy. Actors: 1. Consumers 2. Financial Institutions 3. Businesses 4. The Government 5. The Foreign Sector.

Aggregate Demand ECON 2. Aggregate Demand Aggregate demand is the total demand for a country’s goods and services at a given price level and in a given.

A SIMPLE ECONOMY – the 1800s SECTORSUSE NOWIGNORE FOR NOW Households Businesses Government Foreign Households Businesses Government Foreign TYPES OF SPENDINGUSE.

Households Firms Government ExportsImports Households Land, Labour, Capital, Entrepreneurship Firms Government ExportsImports Loans, Interest Savings.

Circular Flow of Income illustrates how output generates income which is then spent, coming full circle through the economy the relationship between governments,

Understanding the circular flow of income. HOUSEHOLDS RESOURCE OWNERS Business firms Money payments Income payments Wages, Rent, Interest, Profits Consumer.

The Circular Flow Model describes and shows how the economy interacts.

Households What are “Households” in terms of the Circular Flow of the Economy? PEOPLE Workers Land Owners Investors Renters Home Owners Families You &

Unit 1-5: Basic Economic Concepts 1. The Circular Flow Model The Product Market- The “place” where goods and services produced by businesses are sold.

Click to add text The Circular Flow of Income By David Anthony Siddall.

The flow of goods and services in a market economy.

Describe the relationships between the major sectors of the economy. Demonstrate a thorough understanding of the relationships between sectors of the economy.

The Circular Flow Households. The Circular Flow Households Land, Labor, Capital.

THE CIRCULAR FLOW OF INCOME The movement of spending and income throughout the economy.

1  To define the terms in the Circular flow of income  Explain the inter-relationship between expenditure, income and production  To explain why injections.

2.6 Aggregate Demand and the Level of Economic Activity What happens to a snowball as you continue to roll it?

Circular Flow Chart of a Pure Market Economy ©2012, TESCCC.

Unit 2 Glossary. Macroeconomics The study of issues that effect economies as a whole.

Economic Activity 8.03 Explain the circular flow of economic activities and how interactions determine the prices of goods and services. Part-time workers.

2.4.1and unit content Students should be able to: Define national income and show that it can be seen as a circular flow (and draw this) Explain.

Circular Flow of Income Brian and Raihan. Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production.

Circular Flow Diagram Macroeconomics. Our First Model: The Circular-Flow Diagram The circular-flow diagram is a visual model of the economy that shows.

Circular Flow Model & Business Cycle Model ***Back to Macro!***

Circular Flow of Income

Unit 1: Basic Economic Concepts 1.5 Circular Flow Diagram

RECALL: A Simple 2-Sector Model (Firms and Households)

Circular Flow Chapter 2.

Mr. Mayer AP Macroeconomics The Circular Flow of Economic Activity

Circular Flow Chapter 2-3.

2.1 The Level of Overall Economic Activity

The Circular Flow of Income

Circular Flow Of Income Two Sector Model

CIRCULAR FLOW DIAGRAM.

The Circular Flow of Income

Circular Flow Chapter 2-3.

The Two-sector Model of the Economy (Households and Firms)

Circular Flow Chapter 3.

LEARNING OBJECTIVES To KNOW the different accounts contained within a countries balance of payments. To UNDERSTAND the causes and problems of a current.

How the macroeconomy works

Presentation transcript:

The movement of spending and income throughout the economy

 Explain the Circular Flow of Income.  Recall how leakages and injections affect the circular flow. 2

3 The Circular Flow Of Income Households Firms Factor Services Factor Incomes Factor Services Factor Incomes Wages/Salaries Interest Profit Rent Labour Capital Entrepreneur Land Spending Products

4 But there are complications…. Not all FACTOR INCOME is spent on US goods. There are leakages from income. What do you think these are?: Taxation - taken from wages and off the price of goods (VAT) etc Savings – households may not spend all their income Imports – households and firms may spend on imports. ALL OF THE ABOVE ARE LEAKAGES FROM US INCOME

5 The Circular Flow Of Income Households Firms Factor Services Factor Incomes Spending Products Tax Savings Imports

6 These LEAKAGES reduce the circular flow of income WHY ? They represent money leaving US Income :  Taxation goes to government.  Savings are put into bank accounts.  Import spending goes abroad.

7 INJECTIONS In contrast, there are 3 forms of spending that are injected into the flow. Injection: Additions of extra spending into the circular flow of income These are ; N.B Injections come from outside of the circular flow. They increase the circular flow. Exports are goods sold by US firms abroad Government Spending Investment Exports What are each of the above? Government spending is money spent by the government on NHS, defence, benefits, education etc. Investment is money spent by firms on capital goods.

8 Households Firms Factor Services Factor Incomes Spending Products Tax Savings Imports Exports Investment Government Spending The Circular Flow Of Income

9 WHAT DO INJECTIONS AND LEAKAGES DO TO THE CIRCULAR FLOW OF INCOME? If Injections > Leakages then…. ? If Leakages > Injections then…. ? If Injections = Leakages then…. ? Income Rises Income Falls Income Stays the Same

1. What is the circular flow of income? 2. What is an injection? 3. What is a leakage? 4. What are the 3 leakages and 3 injections? 5. Draw it. 10