circular flow of income illustrates how output generates income which is then spent, coming full...

Circular Flow of Income • illustrates how output generates income which is then spent, coming full circle through the economy • the relationship between governments, households, firms, and the foreign sector • income = expenditure = output

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Circular Flow of Income

• illustrates how output generates income which is then spent, coming full circle through the economy

• the relationship between governments, households, firms, and the foreign sector

• income = expenditure = output

Page 2: Circular Flow of Income illustrates how output generates income which is then spent, coming full circle through the economy the relationship between governments,

A Simple 2-Sector ModelWages, Rent, Dividends

Labour

Goods & Services

Consumption Spending

Page 3: Circular Flow of Income illustrates how output generates income which is then spent, coming full circle through the economy the relationship between governments,

A more complex model…

Note: injections & withdrawals can happen at any stage in the model

Page 4: Circular Flow of Income illustrates how output generates income which is then spent, coming full circle through the economy the relationship between governments,

Wealth vs. Income

• Wealth: the sum of all assets in an economy (a stock concept)

• Income: the money generated from that wealth (a flow concept)

• Greater wealth leads to greater income (which can explain why differences between rich & poor can widen without gov’t intervention)

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World Bank Document · 1.1.1 Revenue Productivity A stable tax generates revenues that change relatively more slowly than income - that is, the tax revenue is income inelastic. Real

Policy Impacts on Inequality · 2007-01-19 · Policy Impacts on Inequality Decomposition of Income Inequality by Subgroups 1 1. SUMMARY This tool illustrates how to decompose inequality

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