Through trade and by working together with other countries, they become more interdependent. Institutions like the United Nations and the European Union are examples of them working towards the same goal(s).

Circular economy

Leakages

Taxes paid to the government

Savings that aren't spent

Imports, goods, and services bought from other countries

Injections

Government spending, on public goods and services

Investments, money from outside the country

Exports, money from outside the country

The two markets shown are the resource and product markets

Resource (households to businesses) : labour, land, capital, and enterprise

Products (businesses to households) : paper, clothes, food, and houses

Questions 2

Households buy products and firms buy labour, land etc

Leakages are ways that cause the economy to lose money because people save money, pay taxes and buy imports money goes into other countries instead of the firms.

A closed economy has households that don't spend money on anything other than firms. An open economy spends money on firms but also leakages such as financial markets, other countries, and the government. Making them lose money but also creating a better standard of living in the long run as it allows them to expand as that same money can be used for investment, government spending, and spending on exports.

When leakages are larger than the injections the economy goes down as they're losing money, and vice versa the economy becomes bigger as they are creating more money than they are losing

With households and firms, then the connections in between, and then the leakages and injections above and below.

GDP- gross domestic products

The market value of all finished and capital goods and services within a country in a year

Intermediate goods: a good that is used for another good and will be sold again

Finished goods: won't be sold again as a part of another good.

Capital goods: Used to create more goods (tractor)

To count in the GDP it must be produced in the country, if the USA makes a computer for France it is contributing to the USA’s GDP.

National spending approach: Splitting GDP into Consumption, Investments, Government purchases (only directly spent on goods and services) and exports. Then they remove imports.

GDI: Factor income approach: Income, Capital interest, Rent and Profit.

Government purchases

Consumption

Investment

Consumption

Doesn't affect GDP

TEST

Role of government

Economic systems

Circular flow

Learn how to draw

Injections and leaks