It is different to a closed economy because it Download full-text PDF Read full-text. The circular flow model of an open economy shows the workings of an economy that is open to foreign trade. Circular flow of income and expenditure Slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. But he wants to think a Circular flow of income The circular flow of income is a way of representing the flows of money between the two main groups in society - producers (firms) and consumers (households). the aggregate income of the entire economy going through the sectors of the economy in a circular way. CIRCULAR FLOW OF INCOME & EXPENDITURE WITH GOVERNMENT. • Injections into the circular flow of income must equal withdrawals: • S+T+M ≡I+G+X • S is Saving, T is … The last section 2.3 describes the various sub-categories of national income. Prepared by: Taruna Dureja Banga Micro & Macro Economics Micro Economics Definition - Studying a part of economy, a unit or. firm is going to pay him, the firm that he owns is going 1. Exports are an injection or inflows into … (Y = Y d.) particular, specific aspects Characteristics: Study of individual Determination of individual prices Small variables Immediate disposal of the problem Immediate decisions are possible The circular flow model of the economy is a simplification showing how the economy works and the relationship between income, production and spending in the economy as a whole. •The magnitude of circular flow will be more if X > M •The magnitude of circular flow will be less if X < M •The magnitude of circular flow will be same if X= M •Thus, Y = C + S + T + X is income • E = C + I + G + M is expenditure •For all 4 sectors of the economy to be in equilibrium we must have National Output. Circular Flow of Money with the Foreign Sector: So far the circular flow of income and expenditure has been shown in the case of a closed economy. The same section also deals with the three ways to calculate the national income; namely product method, expenditure method and income method. building and we'll talk about let's say this is all in a given year. 4. The Circular Flow of Income and Expenditure 1-Firms pay to householders rent for land, wages for labor, interest for capital and profit for entrepreneurship (Income Y). Circular Flow of Income and Expenditure of the Two - Sector Economy a) Households: Households own all factors of production and they sell their factor services to earn factor incomes which are entirely spent to consume all final goods and services produced by business firms. • Expenditure is the sum of its components: •Y≡C+I+G+NX • C is consumption, I is investment, G is government spending, and NX is net exports (exports minus imports). ... 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