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

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

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

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

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

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