Personal savings: This refers to the type of savings kept by an individual for personal reasons. It can only come back to the circular flow of income through investments. Money which is saved constitutes a withdrawal from the circular flow of income.
In other words, savings refers to all or part of income which are not spent immediately but reserved for future purposes. Savings may simply be defined as that part of income which is not spent. Investment: Investment creates an additional income leading to injection into the circular flow of income. Import and export: While imports involved expenditure on foreign made goods and services leading to withdrawals from circular flow of income, exports provide funds leading to injection into the circular flow of income. Aids and grants: Aids and grants from government or other sources increase the volume of fund in the circular flow of income. Withdrawal: Withdrawal tends to reduce the amount of fund in the circular flow of income. Taxes: Taxes tend to reduce the volume of fund in circulation as it reduces the expenditure of firms and households. Injection: Injection of fund into the circle is an increase in the incomes of households and firms beside their normal processes of selling productive resources and manufactured goods. They have the tendency to reduce the expenditure of the households and firms. Savings: This constitutes part of income which is not consumed immediately. Factors Affecting Circular Flow of Income While income flows in one direction, goods and services as shown in the figure above produced by the firms and the productive services of households flow in the other direction. Income, therefore, continues to flow in a circular manner to form the circular flow of income. The firms again use the income to purchase the productive services of households. This process leads to the formal of an income flow. This pattern of consumption expenditure made by households constitutes income for firms. The members of the households use their incomes to purchase goods and services produced by the firms. In return, they are paid wages, interest, rents and profits, which constitute their incomes. The households supply factors of production (input) such as labour to firms which need them for production purposes. To make this discussion on circular flow of income simple, a two-sector economy, which involves households and firms, will be used. In other words, it describes the flow of payments from businesses to households in exchange for labour and other productive services and the return flow of payments from households to businesses in exchange for goods and services. These factors include expectation of entrepreneurs, rate of interest, savings, marginal efficiency of capital, and consumption.Ĭircular flow of income: itsmyschoollibraryĬircular flow of income refers to the flow of payments and receipts for factor services and for currently produced out passion between domestic firms and households. The volume of investment is determined mainly by certain factors. The total income of a country is a reflection of real capital investment in that particular country. Explain concept of propensities to consume, propensities to save, Elementary theory of multiplier and Equilibrium level of income. Explain the relationship between savings, investment and consumption State the factors that determine the level of consumption State the factors that determine investment State the factors that affects the circular flow of income Lesson Objectives: At the end of the lesson, learners should be able to Topic: Elementary Theory of Income Determination Welcome ! Our Economics Lessons Continues! Do have a pleasant moment studying with us.
0 kommentar(er)
