The Circular Flow of Income

The circular flow of income The interdependence of goods markets and factor markets

The interdependence of goods and factor markets FIRMS (suppliers of goods and services, demanders of factor services) HOUSEHOLDS (demanders of goods and services, suppliers of factor services)

The interdependence of goods and factor markets (3) Factor demand (2) Producer supply £ £ Factor services Goods P P D2 S S D2 D1 D1 PF2 P2 QF2 PF1 P1 Q2 QF1 Q1 O Factor services Q Goods O Q £ £ (4) Factor supply (1) Consumer demand

The circular flow of income Consumption, injections, withdrawals and equilibrium

The circular flow of income Firms Factor payments Consumption of domestically produced goods and services (Cd) Households

The circular flow of income Export expenditure (X) INJECTIONS Government expenditure (G) Investment (I) Consumption of domestically produced goods and services (Cd) BANKS, etc Net saving (S) ABROAD Import expenditure (M) Factor payments GOV. Net taxes (T) WITHDRAWALS