- Describe, using a diagram, the circular flow of income between households and firms in a closed economy with no government.
- Identify the four factors of production and their respective payments (rent, wages, interest and profit) and explain that these constitute the income flow in the model.
- Outline that the income flow is numerically equivalent to the expenditure flow and the value of output flow.
- Describe, using a diagram, the circular flow of income in an open economy with government and financial markets, referring to leakages/withdrawals (savings, taxes and import expenditure) and injections (investment, government expenditure and export revenue).
- Explain how the size of the circular flow will change depending on the relative size of injections and leakages.
We will then build up a model of the economy on the board and you will be given a worksheet to complete.
Check out this physical model of the circular flow as well...