Economics circular flow model essay
Both leakages and injections are equal in the circular flow model.In order to increase the components of national income e. GDP, GNP etc it should be noted that the demand and supply in the country should be increased and balanced (Buchanan, 1990).A simple circular-flow diagram is illustrated in Figure 1.Here there is no representation of out flow of return from goods and services separately.Adding banks (saving and investment), the government (government spending and taxes) and foreign trade (exports and imports) to the model, the circular flow now shows injections and leakages.The five-sector circular flow of income model is a theoretical way for economists to describe certain features of economic activity and the linkages between the main sectors.Financial reporting is also very important as it also allows the potential investors to know exactly what they are getting themselves into when they invest in a particular ...Households spend their income on: (i) Payment for goods and services purchased from firms;(ii) Tax payments to government;(iii) Payments for imports.This circular flow of money will continue indefinitely week by week and year by year. It may, however, be pointed out that this flow of money income will not always remain the same in volume.Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.The following points highlight the four important features of Schumpeter’s theory of economic development. The circular flow is similar to circulation in blood in an animal organism.
- View Essay - Economics from ECONOMICS 234 at University of Nairobi. Running head CIRCULAR FLOW MODEL, GDP, AND INFLATION REPORT Circular Flow Model, GDP, and.
- Readers Question I am having trouble understanding the circular flow of economics. Could you explain it in simple terms, like how is it involved in my life.
- The point of a circular flow model is to show where the money comes and goes within an economy. Investments, government purchases, transfer payments, and exports.
- Home economics question what is the circular flow of income? explain and illustrate under what conditions the flow will expand or contract and the.
Firms use the factors of production to produce goods and services and sell these to households.Finally I will discuss different types of inflation.The circular flow of income model is a theoretical representation of the economy.A household is a social unit comprised of those living together in the same dwelling.Thus we see that money flows from business firms to households as factor payments and then it flows from households to firms.To do this they use factors and pay for their services.Firms receive revenue from households, government and the foreign sector for sale of their goods and services. Firm makes payments for:(i) Factor services to households;(ii) Taxes to the government;(iii) Imports to the foreign sector.