1.1 Circular flow of income

Circular flow

Continuous flow of income and expenditure

Injection

Money going into the circular flow, which comes from investment, government spending, and exports

Withdrawal/leakage

Money that leaves the circular flow, through taxation, savings, and imports

Income

Total amount earnt in an economy

Output

Total of all goods and services produced in an economy

Expenditure

Total of all spending in an economy

National income

National output = National expenditure

Aggregate demand formula

C + I + G + (X-M)

Trade deficit

Imports > Exports (M > X)

Trade surplus

Exports > Imports (X > M)

Trade equilibrium

Imports = Exports (X = M)

If injections > leakages

Circular flow of income rises

If leakages > injections

Circular flow of income falls

If injections = leakages

Circular flow of income stays the same