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Economics help notes for students
Typology: Study notes
Uploaded on 04/11/2025
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Economics Notes: The Circular Flow of Income
1. Basic Model Shows how income flows between households and firms. Households provide factors of production (land, labour, capital, enterprise). Firms pay wages, rent, interest, and profits in return. Households spend income on goods/services produced by firms. 2. Injections and Withdrawals Injections (add money to the economy): o Investment (I) o Government spending (G) o Exports (X) Withdrawals (remove money from the economy): o Savings (S) o Taxes (T) o Imports (M) 3. Equilibrium National income is stable when injections = withdrawals. If injections > withdrawals →economy grows. If withdrawals > injections →economy shrinks. 4. Importance of the Circular Flow Helps understand how changes in spending affect the economy. Forms the basis for calculating national income. End of Notes