April 8, 2023 Sample footer 1CIRCULAR FLOW

April 8, 2023 Sample footer 2

Types of Flows :

Real Flow: Factors of production and the goods and services.

Money Flow: Monetary flows between different sectors.

April 8, 2023 Sample footer 3

Circular-Flow of Economic Activities:

A household is a person or a group of people that share their income.

A firm is an organization that produces goods and services for sale.

Firms sell goods and services that they produce to households in markets for goods and services.

Firms buy the resources they need to produce—factors of production—in factor markets.

April 8, 2023 Sample footer 4

Stable Economy, Contracting Economy, Expanding Economy :

Stable : If all income is spent

Business will sell all goods, and

Will be induced to produce will goods again .

Contracting : If leakages are Higher than injections (Planned

S+T > Planned I+G), economy contracts resulting in

Inventory accumulation

Too little spending

Drop in prices

Expanding : If injections are Higher than leakages (Planned I+G > Planned S+T), economy expands resulting in

More goods and services produced

Higher prices

April 8, 2023 Sample footer 5

Imports & Exports: Fiscal Deficit and Fiscal Surplus

India Trade: Imports India Trade: Exports

Precious stones Petroleum products

Fertilizer Machinery

Iron and steel Iron and steel

Gold & Silver Chemicals

Electronic Goods Vehicles

Machinery other than Electrical Apparel

Organic & Inorganic Chemicals  Computer software

Metalliferous Ores & Products  

Coal  

Transport Equipment  

April 8, 2023 Sample footer 6

Product MarketsTransactions in which households buy goods

April 8, 2023 Sample footer 7

Factor MarketsTransactions in which businesses buy resources

April 8, 2023 Sample footer 8

Total Income Wages, rent, interest, profits

Copyright © 2008 Pearson Addison Wesley. All rights reserved.

8-9

Two Sector Economy:

April 8, 2023 Sample footer 10

Withdrawals and Injections:

Factor incomes

Households

Firms

Expenditure on goods and services

Injections (+) Withdrawals (-)

Withdrawals (-)Savings: S=Y-C

Injections (+):Investment, Govt exp and exports

April 8, 2023 Sample footer 11

Three sector economy:

Four sectors Economy:

Goods

Other countries

Financial markets

Government

Firms (production)Household

Taxes

Factor services

Savings

Imports

Government

Spending

Wages, rents, interest, profits

Exports

Investment

Personal consumption

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

April 8, 2023 Sample footer 13