Circular flow jena
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April 8, 2023 Sample footer 1CIRCULAR FLOW
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Types of Flows :
Real Flow: Factors of production and the goods and services.
Money Flow: Monetary flows between different sectors.
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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.
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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
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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
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Product MarketsTransactions in which households buy goods
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Factor MarketsTransactions in which businesses buy resources
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Total Income Wages, rent, interest, profits
Copyright © 2008 Pearson Addison Wesley. All rights reserved.
8-9
Two Sector Economy:
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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
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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.
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