Circular Flow of Economics - 1138 Words

The circular flow model is defined as the flow of resources from households to firms and of products to firms from households. These flows are accompanied by reverse flows of money from firms to households and from households to firms. The circular flow is comprised of the resource market, households, product market, businesses, and the government. Macroeconomics - The study of the aggregate (total) Behavior of the whole economy. Macroeconomics Aggregates: - Unemployment rate: Percent of people in the labor force is not working but searching for work. - Inflation rate: Percent rise in the average price of all goods and services. - GDP: Dollar value of all final goods and services produced within a country in a given year; output A†¦show more content†¦Gross national product should equal the national income. GDP is the total market value of all final goods and services produced during a given period and time within the nations borders. Gross domestic product is the most common measure of the level of economic activity at the national level. Households own the economy s resources ( Factors of production; land, labor, and capital) whose services they rent or sell to firms or businesses through factor markets in exchange for factor payments (rental payments, wage payments, interest, and profits). Households use their factor income to purchase goods and services, capital goods. Households also use part of their factor income to pay government taxes. 75% of national income is received as wages and salaries. Part of the income goes to the government as personal taxes, and the rest is divided between personal consumption expenditures and personal saving. Economists define saving as the part of after-tax income which is not consumed. Households have two choices with their income after taxes, to consume or save. The desire or willingness to save depends on the size of your income, if your income is low, you may dissave. Saving and consumption vary directly with income, as the households get more income, they divide it between saving and consumption. Households offer labor service as a factor of production and businesses repay them with income or salaries. The fact that households consume a certainShow MoreRelatedEconomic Viewpoint of the Circular Flow Model939 Words   |  4 PagesEconomic Viewpoint The circular flow model begins with consumer spending (Circular Flow of Economic Activity, 1999). Consumer spending drives the amount of business investments, which, in turn, creates more jobs that allow consumers more money to spend. When employment drops, jobs decrease, leaving consumers with less money to spend, which slows the economy. As employment rises, jobs are created that allow consumers more money to spend that speeds up the economy. When the government reducesRead MoreExplain how Leakages and Injections Influence the Level of Economic Activity and Explain how the Government Influences Economic Activity1165 Words   |  5 Pagesinfluence on economic activity, as they basically are economic activity. Without leakages and injections there would be no circular flow, without which the economy would run as it does now. The government also plays a major role in the running of the economy as it has a great influence over what goes in and out of the circular flow by the way of taxation, imports and exports. The five-sector circular flow of income model is a theoretical way for economists to describe certain features of economic activityRead MoreCircular Flow Model1266 Words   |  6 PagesThe circular flow of income model is a theoretical representation of the economy. It shows the distribution of income within the economy and the interaction between the different sectors in a modern market economy. The five-sector model is a more elaborate model in comparison to the basic, two, three and four sector models. The model represents an economy like Australia and divides the economy into five main sectors. The first sector in the model is the Households sector. This sector refers toRead MoreCircular Flow Diagrams893 Words   |  4 Pages Circular Flow Diagrams Introduction Money flows into and out of the economy. The circular flow diagram explains how money moves through the economic system involving households, businesses, the government, and foreign agents (Editorial Board, 2011). Circular flow diagrams are visual models that show firms who employ workers, the workers then spend on goods produced by firms, and the money is then used to compensate the worker and buy raw materials to make the goods and the circle continuesRead MoreTen Principles Of Economics And The Data Of Macroeconomics Essay1216 Words   |  5 PagesTen Principles of Economics and the Data of Macroeconomics Mankiw explains that economics is the study of how society manages its scarce resources. And, how the combined choices of millions of households and firms determine how those resources are allocated. To understand these complex concepts, economists must study how people make decisions, how people interact with other people, and the forces and trends that affect the entire economy (p. 16). To do so, economists assume many roles. EconomistsRead MoreEssay on Analysing the Recent Economic Recession and Its Effects1122 Words   |  5 PagesThe business cycle is the short-run alternation between economic downturns and economic upturns (Investopedia n.d.). A recession is an economic downturn and happens in every country and some recessions are worse than others and the output of GDP and employment are falling farther and faster. The great depression lasted from 1929-1933 and was a deep prolonged downturn in the business cycle before a recovery/expansion of the business cycle occurred and GDP and employment started to rise (Krugman Read More The Circular Flow Model Accompanied by Reverse Flows Essay1115 Words   |  5 PagesThe Circular Flow Model Accompanied by Reverse Flows The circular flow model is defined as the flow of resources from households to firms and of products to firms from households. These flows are accompanied by reverse flows of money from firms to households and from households to firms. The circular flow is comprised of the resource market, households, product market, businesses, and the government. Macroeconomics - The study of the aggregate (total) Behavior of the whole economy. Read MoreConcept Of Circular Flow And The National Economy1516 Words   |  7 PagesConcept Guide 2 Claudia Cooper Income, Circular Flow, and The National Economy 2.1.1 Income – Describe how individuals and businesses earn income by selling productive resources. They receive the difference between the monetary value at which it is sold and the cost they had to pay to make it. 2.1.2 Circular Flow and the National Economy – Using the concept of circular flow, analyze the roles of and the relationships between households, business firms, financial institutions, and government andRead MoreCircular Economy Conceptualization, Fundamental Principles And Design Process1371 Words   |  6 Pagesconceptual shift away from current ‘take-make-dispose’ system, which generate toxic, one-way, ‘cradle-to-grave’ material flows, moving toward a ‘cradle-to-cradle’ system that can be conceptualized and represented in the Circular Economy; integrating economic activity and environmental welfare in a sustainable way. Therefore, the aim of this paper is to concentrate on circular economy conceptualization, fundamental principles and design process. Exploring some of the strengths and weaknesses in itsRead MoreEconomic growth845 Words   |  4 Pagesï » ¿Economic Growth Economic growth is the percentage increase in real national output in a given time period or the increase in the productive potential of the economy. Countries grwo at different rates, this is partly due to the fact that they are at different stages of their economic cycle. The economic growth for the UK is at 0.2%. The main measure of output is gross domestic product (GDP). GDP is the total value of goods and services produced in an economy during one year. Economic growth