The circular flow of income

What can we conclude from the circular flow of income model?

How we can look at economic growth and how we can measure economic growth

What does circular flow of income show us?

• How different parts of the economy fit together

• How national income and GDP can be calculated

What are injections into the circular flow of income?

• Investment

• Exports

• Government spending

• What are the withdrawals out of the circular flow?

• Savings

• Taxation

• Imports

How can we calculate GDP

Output method

Income method

Expenditure method

How can we measure GDP using the output method?

Look at the final value of all goods and services produced in an economy in a year

How can we measure GDP using the income method?

Adding up all the factor incomes (rewards of FofP) in a year

How can we measure GDP using the expenditure method

Add total consumer expenditure in a year. C + I + G + (X-M)

What is value added?

The increase in market value of goods and services during each stage of production or supply

What does national income measure

A country’s total economic output - monetary value of all final goods and services produced