2.4.1: National Income

• Circular flow of income: A model which shows how income is transferred between households, firms and the government
• In the circular flow of income, 2 main agents are firms and households. Money is given by households to firms in return for goods and services, and households provide the factors of production to firms in return for money from firms
• The other 3 agents are governments, financial services and foreign markets

  Governments remove money through tax and add it through spending

  Financial services remove money through saving, and add it through investment

  Foreign markets remove money through imports and add it through exports
• Wealth is a stock of assets e.g home, while income is a flow of money received