part a- circular flow of income

• what is an economy made up of?

  FIRMS AND HOUSEHOLDS
• what do firms produce?

  goods and services- make up national ouput
• what do households do?

  provide labour, land, capital that firms use to produce the national output

  Money paid to households by firms for F.O.P is the national income
• households spend money from national income on goods/services (output) that firms create- value of this spending is national expenditure
• how can the circular flow of income shown?

  National output=National income= National expenditure
• what is income?

  Sum of all money paid to households (Rent+Wages + interest +profit)
• What is YOE?

  income +output+expenditure
• 2 flows:

  Physical flow- (shown by straight arrows) of 'real things' i.e goods and services

  Monetary flow- (curved arrows)- i.e money that pays for physical things