The Circular Flow of Income

The Circular Flow of Income

FIRMS(suppliers of goods and services,

demanders of factor services)

HOUSEHOLDS(demanders of goods and services,

suppliers of factor services)

Q1

P1

QF2

PF2

Q2

P2PF1

QF1

D2D2

P

Q

P

Q

££ ££

££££

Factorservices

Goods

GoodsFactor

services

S S

D1 D1

(1)Consumer

demand

(1)Consumer

demand

(4)Factor supply

(4)Factor supply

(3)Factor

demand

(3)Factor

demand

(2)Producer

supply

(2)Producer

supply

OO

Factorpayments

Factorpayments

Consumption ofdomestically

produced goodsand services (Cd)

Consumption ofdomestically

produced goodsand services (Cd)

The circular flow of incomeThe circular flow of income

Firms

Households

Factorpayments

Factorpayments

Consumption ofdomestically

produced goodsand services (Cd)

Consumption ofdomestically

produced goodsand services (Cd)

Investment (I)Investment (I)

Governmentexpenditure (G)

Governmentexpenditure (G)

Exportexpenditure (X)

Exportexpenditure (X)

BANKS, etc

Netsaving (S)

Netsaving (S)

GOV.

Nettaxes (T)

Nettaxes (T)

ABROAD

Importexpenditure (M)

Importexpenditure (M)

The circular flow of incomeThe circular flow of income

WITHDRAWALS

INJECTIONS