Circular flow of income

Income

measures the flow of money a person or economy makes in a year

Wealth

the sum or stock of a persons assets added together

Draw the simple circular flow model

a diagram which illustrates the flow of money, goods and services in an economy with interactions between firms and households

What is the Circular flow Model Equation

National Income = National Expenditure = National Output

Why is National Income = National Expenditure = National Output

This is because total spending (national expenditure ) comes from households from their total income (national income). Households spend their income (national expenditure) on the total output of goods and services produced in an eonomy .

What are factor incomes

Wages and salaries paid by firms ot households in exchange for factors of production

Factors of production

Capital, Enterprise, Land, Labour

Real GDP

a statistical measure which measures the total value of all goods and services produced within an economy - National output

Leakages / Withdrawals

When money leaves the circular flow of income

Types of leakages/withdrawals

Savings, Imports , Taxes

Injections

When money comes into the circular flow model

Types of injections

Exports, government spending, investment

leakages (or withdrawals) are greater than injections

Will shrink the economy as more money is leaving the circular flow

injections are greater than withdrawals

Will grow the economy as more money is entering the circular flow