2.3.2 Income Flow (Factors of Production & Goods and Services)
Completion requirements
The figure illustrates the circular flow of economic activity, including Factors of Production and Goods and Services.
Households spend their incomes on goods and services produced by businesses.
Businesses spend their money producing these goods and services.
When total spending equals total production, the economy is in equilibrium.
The total value of goods and services in one year is our Gross Domestic Product (GDP).
Businesses spend their money producing these goods and services.
When total spending equals total production, the economy is in equilibrium.
The total value of goods and services in one year is our Gross Domestic Product (GDP).
Factors of Production
(land, labour, and capital) flow FROM households TO businesses. Households earn money by providing these factors. These household Incomes flow FROM businesses TO households.
Goods and Services flow FROM businesses TO households. Households pay for these goods and services. These household Expenditures flow FROM households TO businesses.