The circular flow Flashcards
What is the circular flow model?
Shows how the economy works and the relationship between income. production and spending in the economy.
What are households?
The consumers in the economy.
What are the businesses?
The producers in the economy.
What is the government?
Institution that provides public goods and services.
What is the foreign sector?
Countries from which we import and export goods and services.
What is real flow?
Flow of factors of production, goods and services.
What is monetary flow?
Flow of money, income and spending.
What are leakages?
Represents money leaving the lfow model.
What are injections?
Represents money flowing into flow model.
What is the difference between a closed and open economy?
A closed economy has no foreign sector while an open economy does.
What does T, S, M stand for?
Taxes, Savings, Imports
What does T+S+M equal?
T+S+M = Leakages
What does I, G, X stand for?
Investments, Government, exports
What does I+G+X equal?
I+G+X = Injections
What happens when T+S+M = I+G+X
The economy in in equilibrium.
