Circular Flow of Income

• income is the flow of money a person or economy receives each year
• wealth is the value of all your assets
• overtime income can turn into wealth (use income to buy assets)
• assets are items that we own
• Circular flow of income model:

  • households hold factors of production (land, labour, capital, enterprise)
  • Firms buy factors of production from households
  • firms pay incomes to households in return
  • Households spend this income on goods and services produced by firms