Money – Its Origin & Its Importance ECO 473 – Dr. Dennis Foster.
ECO 285 The Circular Flow Model Dr. Dennis Foster – Spring 2014.
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Transcript of ECO 285 The Circular Flow Model Dr. Dennis Foster – Spring 2014.
Additional References
• Wikipedia on the Circular Flow of Income
• St. Louis Fed video
• The circularflow model critiqued
• YouTube video
CF I – 2 sectors & no saving
Households (HH)
Businesses (Bus)
Goods and Services
Factor “rental” – land, labor, capital
Consumption Expenditures
Income to factors
Real flows.Money flows.
CF II – 2 sectors & saving
Households (HH)
Businesses (Bus)
Goods and Services
Factor “rental” – land, labor, capital
Consumption Expenditures
Income to factors
Real flows.Money flows.
Financial Intermediaries
Saving
Investment
CF II* – 2 sectors & saving
Households (HH)
Businesses (Bus)
Goods and Services
Factor “rental” – land, labor, capital
Consumption Expenditures
Income to factors
Real flows.Money flows.
Financial Intermediaries
Saving
Investment
Investment Goods
I
C
CF III – 3 sectors & saving
Households (HH)
Businesses (Bus)
Goods and Services
Factor “rental” – land, labor, capital
Income to factors
Real flows.Money flows.
Financial Intermediaries
Saving
Investment
Investment Goods
I
Gov’t.Government Expenditures
Taxes
Gov’t. G & S
C
CF III – money flows only
Households (HH)
Businesses (Bus)
Income to factors
Money flows.
Financial Intermediaries
Saving
Investment
I
Gov’t.Government Expenditures
Taxes
C
CF IV – 4 sectors; money flows
Households (HH)
Businesses (Bus)
Income to factors
Money flows.
Financial Intermediaries
Saving Investmen
t
I
Gov’t.Government Expenditures
Taxes
Foreign Sector
Imports
Exports
Imports spendingExports spending
Why the Circular Flow Model?
1. To show how the different sectors of the economy interact with one another.
2. To measure the level ofeconomic activity.
--Can’t measure physical flows.--Can measure money flows.--Can measure expenditures or income.
GDP & Data
• GDP = Income = C + I + G +(Ex-Im)
• NBER business cycle page
• FRED recession graph
• Economic Report of the President