l2 economics

• Real flows 


  Real flows are those of resources and production - goods and services
• Money flows 


  Money flows represent the number of dollars or amount of money spent in return for real flows
• FOP


  Factors of Production
• Factors of Production

  Land - rent

  Labour - wages

  Capital - interest

  Entrepreneurship - profit
• INJECTIONS 


  Export receipts

  Investment spending

  Government spending
• WITHDRAWALS

  Import payments

  Savings

  Tax
• Limitations of the Circular flow

  Model doesnt indicate economy size/health/speed/growth. It shows the inter relationships among economy components. Composition of output ('good and bad expenditure') not easy to identify

  Model measures only market transactions.

  Not all output is measured/measurable
• Injections > Withdrawals

  = Economic Growth
• Economic Growth

  Injections > Withdrawals
• Withdrawals > Injections

  = Negative Economic Growth
• Negative Economic Growth

  Withdrawals > Injections
• Injection 


  A change in an activity which increases the size of the circular flow
• Withdrawals 


  A change in activity which decreases the size of the circular flow
• Investment 


  Purchase of new capital equipment by firms
• C -

  Consumption Expenditure
• I -

  Investment
• T - 


  Tax
• X - 


  Export receipts
• m -

  Import payments
• Tr - 


  Transfer payments (e.g - unemployment benefit)
• y -

  Income
• Savings 


  Refraining from consumption, that is the part of our income we dont spend
• Injections def

  Additions of spending to the circular flow which increase economic growth
• Withdrawals def 


  Leakages from the circular flow which decrease economic growth
• Government pay firms 


  Subsidies
• Government pay firms 


  Government Consumption Expenditure (G)
• Firms pay government

  Indirect Tax (IT)
• Households pay government

  Direct Tax (DT)
• Government pay households

  Transfer payments (Tr)
• Firms to overseas

  Import payments (m)
• Overseas to firms 


  Export receipts (X)
• Firms TO overseas

  Exports
• Overseas TO firms

  Imports
• Households to Financial Institutions

  Savings (S)
• Households to firms

  Consumption spending (C)
• Firms to households

  Goods and Services
• Households to firms

  Factors of Production
• Firms to Households

  Payment for Factors of Production (y)
• Financial institutions to firms

  Investment (I)
• PPC

  Production Possibility Curve