Simple Circular Flow Model - Lecture Notes | SS 141, Study notes of Introduction to Macroeconomics

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“Simple” Circular Flow Model

Simple

Circular Flow Model

Pages 38-41, 75-76, and 114-

Patrick Yanez

Is there a model that that shows the

bones

system

of capitalism?

Simple Circular Flow Model

XX

Wh t

i

t

t

Wh

at

important

organizations are missing inorganizations are missing in

this “

s

imple

” model?

p

Patrick Yanez

This is a

PRIVATE

economy…

(no government…)

RESOURCERESOURCE

$ COSTS$ COSTS

$ INCOMES$ INCOMES

(no

government…)

RESOURCERESOURCE

MARKETMARKET

RESOURCESRESOURCES

INPUTSINPUTS

RESOURCESRESOURCES

INPUTSINPUTS

HOUSEHOLDSHOUSEHOLDS

BUSINESSES

PRODUCTPRODUCT

GOODS &GOODS &

SERVICESSERVICES

GOODS &GOODS &

SERVICESSERVICES

Patrick Yanez

PRODUCTPRODUCT

MARKETMARKET

$ CONSUMPTION$ CONSUMPTION

$ REVENUE$ REVENUE

Circular Flow

Income (Y)ResourcesOutput (O)

HOUSEHOLDS

FIRMS

Expenditures (E)

Savings (S)

Investments (I)

I N

L

Financial Sector

g

( )

( )

J E C T

E A K A

I O N S

G E S

GOVERNMENT

SPENDING (G)

TAXES (T)

5 sector economy

IMPORTS (X)

EXPORTS (M)

Foreign Sector

Patrick Yanez

LEAKAGESLEAKAGES

INJECTIONSINJECTIONS

Saving (S)

Investment (I)

LEAKAGESLEAKAGES

INJECTIONSINJECTIONS

g ( )

Taxes (T)Imports (M)

( )

Gov. Spending (G)Exports (X)

Imports (M)

Exports (X)

Patrick Yanez

Saving (S)Taxes (T)

Investment (I)Gov. Spending (G)

LEAKAGESLEAKAGES

INJECTIONSINJECTIONS

Imports (M)

Exports (X)

Disequilibrium

q

Total Leakages

Total Injections

S + T + M

≠

I + G + X

g

j

S + T + M

≠

I

• G + X

Patrick Yanez