Circular Flow Model & Business Cycle Model Back to Macro!

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Presentation transcript:

Circular Flow Model & Business Cycle Model ***Back to Macro!***

Macro v. Micro Recap ***The line is not always clear, but here’s a general difference:

Basic circular flow model (‘closed economy’ - no gov’t) Rent, wages, interest, profit What are the four ? LAND, LABOR, CAPITAL, ENTREPRENEURSHIP

Rent + wages + interest + profit = Income for households In circular flow model, income = expenditure (output)

More complex circular flow model (‘open economy’ - gov’t, financial markets) Expenditures Expenditures Revenue

Could the circular flow change size depending on the relative size of injections and leakages? Yes!!!