Circular Flow

A generalization of different actors in an economy
includes households, businesses, government, and the foreign sector, each playing a crucial role in the flow of goods, services, and resources.
The household sector are those who live in a nation and in a capitalist economy, they provide labor and consume goods and services, thereby driving demand and influencing production. They own the factors of production -labor, land, and capital- they rent or sell those factors for income and by goods with it.
The business sector encompasses firms that produce goods and services, employing labor from households and utilizing capital to generate profit. This sector is essential for creating products that meet the needs and wants of consumers, while also contributing to economic growth through investment and innovation.
the government sector plays a vital role in regulating economic activity, collecting taxes to fund public services, and redistributing income to promote social welfare. It provides essential services such as education, healthcare, and infrastructure, which support both households and businesses in their economic endeavors.
The foreign sector plays a crucial role in the circular flow by engaging in trade with domestic businesses and households, allowing for the exchange of goods, services, and capital across borders. This interaction can lead to increased economic growth and diversification of markets.

divided into 3 categories: Product, Factor, and financial
Product markets are where final goods and services produced by businesses are sold to households and other businesses, facilitating consumption and demand within the economy. If a good will be used in making and selling another, then it’s and intermediate good. For example, raw materials such as steel or lumber are considered intermediate goods, as they are used in the production of final products like cars or furniture.
Factor markets are where factors of production, such as labor, land, and capital, are bought and sold. In these markets, households provide their labor to businesses in exchange for wages, while businesses acquire the necessary resources to produce goods and services.
Financial markets are platforms where financial assets, such as stocks, bonds, and currencies, are traded. These markets facilitate the flow of funds between savers and borrowers, allowing businesses to raise capital for expansion and individuals to invest their savings for future growth.

refer to spending over time
Divided into categories: consumption, investment, gov expenditures on goods or services, imports, and exports. Is tracked per year
Consumption: Refers to the total value of all goods and services purchased by households, which includes durable goods, nondurable goods, and services.
Investment: Represents the purchase of goods that will be used in the future to create wealth, including business investments in equipment, structures, and residential construction. goods that are used up are intermediate goods, the capital is what’s left after the production process.
government expenditure: Refers to the total amount spent by the government on goods and services, which can include public services such as education, healthcare, and infrastructure projects.
exports : The goods and services produced domestically and sold to foreign buyers, contributing to the overall income and economic activity within the country. imports : The goods and services purchased from foreign producers, which can affect the domestic economy by influencing the balance of trade and overall economic growth.
Net exports are the exports - imports

Is earned by the owners factors of production like if you have a job, you own your labor and earn income
Most factors of production are owned by the household sector
You buy stuff from a company, but people own the company. Those people are part of the household sector, thus the company is part household sector and earns the most money in the economy.
Income is divided into categories:
Wages: Compensation received by employees for their labor.
Rent: Income earned by landlords from leasing property.
Interest: Earnings from lending money or investing in financial securities.
Profit: The income received by business owners after expenses are deducted.

A flow is variable measured over time, while a stock is measured at one point in time.
Two terms to know:
leakages: occurs when households spend money on anything other than goods and services produced by businesses, like taxes, savings and import expenditures.
Injections: occur when money is added back into the economy through government spending, investments, and exports, which help to stimulate economic activity and increase the overall flow of resources.
Circular flow: The continuous movement of money among different sectors of the economy, illustrating how money circulates between households and businesses through consumption and production.

Total market value of all final goods and services produced in one year in a country
GDP = C + I + G + Xn
Where C represents consumption (durable and nondurable goods), I stands for investment (machinery and tools), G denotes government spending (direct purchasing of resources), and Xn reflects net exports.