circular flow and unemployment

Circular Flow

  • Circular Flow Diagram

    • Represents the relationship between income and expenditures.

    • Types of Markets:

    • Goods and Services

    • Factors of Production

    • Players in the Market:

    • Firms

    • Households

Business Firms Role

  • Producers:

    • Hire resources to create goods and services.

Households (Individuals) Roles

  • A. Resource Owners:

    • Individuals who own resources that firms hire.

  • B. Consumers:

    • Purchase goods and services for personal consumption.

Financial Flows in Circular Flow

  • Personal Consumption Expenditure:

    • The amount spent by households on goods and services.

  • Revenue:

    • Income received by firms from selling goods and services.

  • Expenses:

    • Costs incurred by businesses to hire resources.

The Resource Market

  • Players involved:

    • Firms

    • Government

    • Households

  • Market Transactions:

    • Firms hire resources in exchange for money (income) to households

    • Households offer resources in exchange for money (revenue) from firms

    • Goods & Services Sold:

    • Firms sell finished goods and services to households.

Financial Aspects of the Circular Flow

  • Income Components:

    • Wage, Rent, Interest, Profit.

  • Components of Household Expense:

    • Personal consumption

    • Savings

    • Taxes

Examples of Economic Transactions

  1. Government Subsidies:

    • E.g., The government subsidizes onion production enabling households to purchase onions at lower prices.

  2. Income Tax Comparison:

    • Chris has a smaller income tax rate compared to his supervisor’s 5%.

  3. Government Purchases:

    • San Juan City Government purchased 3 new ambulance vehicles for 3.6 million pesos.

  4. Corporate Tax Expenses:

    • Jollibee Food Corporation paid ₱1.3 million in taxes for September 2025.

  5. Savings Allocation:

    • Mrs. Cruz allotted ₱2,000 for her savings in her BDO Account.

Underemployment and Unemployment

  • Concept of Unemployment:

    • Defined as the condition when an individual actively searching for employment is unable to find work.

    • Considered a significant indicator of economic health.

  • Statistics:

    • Unemployment Rate (as of December 2024):

    • 3.2%

    • Breakdown into preliminary and final data (0.1% variations may not equal exact due to rounding).

  • Underemployment Statistics:

    • Underemployment rate also included in the analysis (December 2024 showing rates like 11.9%).

Types and Roles of Employment

  • Part-Time Employment:

    • Defined as employment under a reduced schedule (e.g., 30 hours/week vs. 40 hours/week).

    • Employer-defined work hours and benefits.

  • Underemployment:

    • Refers to individuals working involuntarily in jobs that do not utilize their full skills or are in part-time roles desiring full-time employment.

Types of Unemployment

  1. Structural Unemployment:

    • Results from shifts in the economy causing mismatch between job skills workers possess and what employers need.

  2. Frictional Unemployment:

    • Occurs when workers leave jobs but have not secured new positions.

  3. Cyclical Unemployment:

    • Arises during the contraction phase of the business cycle, impacting demand for jobs.

Economic Implications of Unemployment

  • Concerns with Unemployment:

    • Major economic issues include reduced consumer spending, increased social issues, and financial strain on households.

    • Connection between higher unemployment rates and decreased economic growth.

Conclusion

  • Insights and further exploration into the impact of employment statistics on the broader economy and how labor dynamics can shift.

  • The interconnected nature of employment, underemployment, and circular flow dynamics highlights the need for effective policy interventions.