The circular flow of income basic model (1) - closed economy no government
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You need to be able to:
Explain, using a diagram (eg Diagram above), the circular flow of income between households and firms in a closed economy with no government.
Identify the four factors of production and their respective payments
and explain that these constitute the income flow in the Closed Economy with no Government model.
Concepts arising from the Circular Flow model
Outline that the income flow is numerically equivalent to the expenditure flow and the value of output flow.
Y = E = Q
Remember that the flow of goods and services one way and the flow of factors of production the other way is called
and the flow of (money) income one way and the flow of (money) expenditure the other way is called the