2.4.1 Circular Flow of Income & National Income

How does a Circular flow of income look like?

What does Circular flow mean?

The circular flow of income is a way of representing the flows of money between the two main groups in society-production (firms) and consumers (households), this includes injections and withdrawals.

What is included in Factor Services?

Land, Labour, Capital, Enterprise.

What is included in Income?

Rent, Wages, Interests and Profits

What does Injections mean?

Is Money (income) entering the circular flow of income (households and firms).

What are Examples of Injections?

1) Gov.Spending

2) Exports

3) Foreign Investments

What is Gov.Spending in injections?

If gov builds an new school this creates jobs, households receive income = injection.

What is Exports in Injections?

Higher exports increase revenue for Uk firms = Injection.

What is Foreign Investment in Injections?

When a company outside of the UK invests/builds a factory in the UK, creating jobs therefore increasing income for households = injection.

What is withdrawals?

Is money leaving the circular flow of income (households and firms).

What is Taxes (withdrawal)?

This is money that gov. takes from households income = withdrawal. For e.g. income and corporate tax.

What is Imports (withdrawal)?

This is money taken from UK firms and sent abroad to other firms = withdrawals.

What is savings (withdrawals)?

This is money put aside which is NOT spent in firms withdrawal.

What is the difference between Income and Wealth (Income)?

Income is money received by factors of production for e.g. wages received by labour.

What is the difference between wealth and income (wealth)?

Wealth is a stock (collection) of assets. An assets is something that is purchased by an investor which the intention that it may rise in value in the future e.g. property and gold.