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What is the circular flow of income?
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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WHAT IS THE CIRCULAR FLOW OF INCOME? EXPLAIN AND ILLUSTRATE UNDER WHAT CONDITIONS THE FLOW WILL EXPAND OR CONTRACT AND THE CONCEQUENCES FOR INCOME AND THE PRICE LEVEL. MAKE CLEAR ANY ASSUPTIONS YOU MAKE. The purpose of this essay is to explain what the circular flow of income is and show the several conditions, under which the flow will expand or contract. Furthermore, via examples and diagrams, we are going to illustrate the consequences for income and price level. The circular flow of income is very useful as a model for understanding the working of an economy. It shows how national income can increase or decrease because of changes in the various flows. In order to explain the circular flow of income, we have to deal with two kinds of variables: stock variables and flow variables. Stock variables are measured at a particular point in time whereas flow variables...
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