The circular flow shows the flows of goods and services and incomes to factors of production.
Shows how national income or GDP can be calculated
Businesses produce goods and services and in the process of doing so, incomes are generated for factors of production (land, labour, capital and enterprise)
Injections into the circular flow are

Investment spending
Exports of goods and services
Government spending

Leakages (withdrawals) from the circular flow are

Savings in bank accounts
Taxation e.g. income tax and national insurance
Imports e.g. spending on foreign goods and services

These lead to a multiplied contraction of production (output)
Macroeconomic equilibrium is when rate of injections is equal to the rate of withdrawals.

	Created by Hannah Nad about 8 years ago

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