Circular Flow of Income Flashcards
What is Circular Flow of Income?
The Circular Flow of Income is the flow of factor incomes from firms to households in return for factor services.
What is Real Flow?
Real flow is the flow of goods, services and factor services.
What is Money Flow?
Money Flow is the flow of factor incomes from firms to households
What are Leakages?
Leakages are income of households and firms that is not passed on in the circular flow of income
What are Savings?
Savings are all income that is not consumed
What are Injections?
Injections are additions to the circular flow of income
What are the main sectors in the circular flow of income?
Households (consumers)
Firms (producers)
Government
Foreign Sector
Sometimes Financial Sector
What do households provide?
Households provide factors of production (labor, capital, land, etc.) to firms in the factor markets.
What do the firms do?
Firms use the factors from the households to produce goods and services, which they sell to households in the product markets.
What is the role of government and foreign sector ?
The government can intervene in the circular flow through taxation, spending, and regulations.
The foreign sector (imports and exports) can also influence the circular flow.
