THE CIRCULAR FLOW OF ECONOMIC ACTIVITY INTRODUCTORY MACROECONOMICS By:  Cristobal M. Pagoso Rosemary P. Dinio George A. Vi...
Basic Economic Activities <ul><li>Production </li></ul><ul><ul><ul><li>The use of economic resources in the creation of go...
Two Economic Units <ul><li>Household </li></ul><ul><ul><ul><li>The basic consuming unit. </li></ul></ul></ul><ul><li>Firm ...
Stock and Flow Variables <ul><li>Flow </li></ul><ul><ul><ul><li>A quantity measured over a particular period of time. </li...
Economic Model of Production <ul><li>The Circular Flow of the Production Process </li></ul>HOUSEHOLDS ECONOMIC RESOURCES G...
Circular Flow of Goods Among Production Units FINAL GOOD FIRM RAW MATERIAL FIRM CONSUMERS INTERMEDIATE GOOD FIRM RAW MATER...
Interrelation Between Production Units & Households HOUSEHOLDS RESOURCES RESOURCES RESOURCES FINAL GOOD FIRM INTERMEDIATE ...
Economic Model of Income and Consumption <ul><li>The Circular Flow of Goods and Income </li></ul><ul><li>Among Producers &...
The Circular Flow of Income PURCHASES OF GOODS AND SERVICES INCOME FLOW OF WAGES, INTERESTS, RENTS HOUSEHOLDS PRODUCING UN...
Circular Flow of Income Among Production Units FINAL GOOD FIRM RAW MATERIALS FIRM MONEY PAYMENTS FOR INTERMEDIATE GOODS MO...
The Circular Flow of Output and Income <ul><li>Circular Flow of Physical Goods and Money Income </li></ul>Goods and Servic...
The Circular Flow of Goods & Income of Households & Firms with the Government & Foreign Countries GOVERNMENT HOUSEHOLDS PR...
Implications of the  Circular Flow of Economic Activity <ul><li>The goods, resources, and money payments will flow as long...
Inflows and Outflows <ul><li>Outflows  (factors that decrease the level of economic activity) </li></ul><ul><ul><ul><li>Sa...
The Circular Flow of Economic Activity Reflecting The Outflows & The Inflows HOUSEHOLDS PRODUCING UNITS Income Payments of...
<ul><li>Outflows  are difficult to control because they are dependent on income.  When income increases, we expect savings...
Three Sets of Policy <ul><li>Monetary policy </li></ul><ul><ul><ul><li>Affects the savings and investment. </li></ul></ul>...
- THE END - <ul><li>Any questions? </li></ul><ul><li>GOOD DAY!!!   </li></ul>
Upcoming SlideShare
Loading in …5
×

Dmydocspatricelourdescollegepowerpointsecon1thecircularflowofeconomicactivity 090331025031-phpapp01

4,928 views

Published on

Published in: Economy & Finance, Business
0 Comments
3 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,928
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
146
Comments
0
Likes
3
Embeds 0
No embeds

No notes for slide

Dmydocspatricelourdescollegepowerpointsecon1thecircularflowofeconomicactivity 090331025031-phpapp01

  1. 1. THE CIRCULAR FLOW OF ECONOMIC ACTIVITY INTRODUCTORY MACROECONOMICS By: Cristobal M. Pagoso Rosemary P. Dinio George A. Villasis Prepared by: GREGAR DONAVEN E. VALDEHUEZA, MBA Lourdes College Instructor
  2. 2. Basic Economic Activities <ul><li>Production </li></ul><ul><ul><ul><li>The use of economic resources in the creation of goods and services for the satisfaction of human wants. </li></ul></ul></ul><ul><li>Consumption </li></ul><ul><ul><ul><li>The using up of goods and services by consumer purchasing or in the production of other goods. </li></ul></ul></ul><ul><li>Employment </li></ul><ul><ul><ul><li>The use of economic resources in production; engagement in activity </li></ul></ul></ul><ul><li>Income Generation </li></ul><ul><ul><ul><li>The production of maximum amount an individual can spend during a period without being any worse off. </li></ul></ul></ul>
  3. 3. Two Economic Units <ul><li>Household </li></ul><ul><ul><ul><li>The basic consuming unit. </li></ul></ul></ul><ul><li>Firm </li></ul><ul><ul><ul><li>The basic producing unit. </li></ul></ul></ul>
  4. 4. Stock and Flow Variables <ul><li>Flow </li></ul><ul><ul><ul><li>A quantity measured over a particular period of time. </li></ul></ul></ul><ul><li>Stock </li></ul><ul><ul><ul><li>A quantity measured as of a given point in time. </li></ul></ul></ul><ul><li>The concepts of stock and flow measurements are essential in understanding the economic variables of wealth and income. </li></ul><ul><ul><li>Wealth </li></ul></ul><ul><ul><ul><li>Anything of valued owned. It is a stock since it is what is owned at a particular time. </li></ul></ul></ul><ul><ul><li>Income </li></ul></ul><ul><ul><ul><li>The rate at which we earn money. It is a flow since income that is saved, increases the stock of wealth. </li></ul></ul></ul>
  5. 5. Economic Model of Production <ul><li>The Circular Flow of the Production Process </li></ul>HOUSEHOLDS ECONOMIC RESOURCES GOODS AND SERVICES PRODUCING UNITS
  6. 6. Circular Flow of Goods Among Production Units FINAL GOOD FIRM RAW MATERIAL FIRM CONSUMERS INTERMEDIATE GOOD FIRM RAW MATERIALS FINAL GOODS INTERMEDIATE GOODS
  7. 7. Interrelation Between Production Units & Households HOUSEHOLDS RESOURCES RESOURCES RESOURCES FINAL GOOD FIRM INTERMEDIATE GOOD FIRM RAW MATERIAL FIRM
  8. 8. Economic Model of Income and Consumption <ul><li>The Circular Flow of Goods and Income </li></ul><ul><li>Among Producers & Households </li></ul>HOUSEHOLDS INTERMEDIATE GOOD FIRM RAW MATERIAL FIRM MONEY PAYMENT FOR PURCHASE OF FINAL GOODS RESOURCES MONEY PAYMENT FOR RESOURCES RESOURCES MONEY PAYMENT FOR RESOURCES RESOURCES MONEY PAYMENT FOR RERESOURCES FINAL GOODS FINAL GOOD FIRM
  9. 9. The Circular Flow of Income PURCHASES OF GOODS AND SERVICES INCOME FLOW OF WAGES, INTERESTS, RENTS HOUSEHOLDS PRODUCING UNITS
  10. 10. Circular Flow of Income Among Production Units FINAL GOOD FIRM RAW MATERIALS FIRM MONEY PAYMENTS FOR INTERMEDIATE GOODS MONEY PAYMENTS FOR RAW MATERIALS INTERMEDIATE GOOD FIRM HOUSEHOLDS MONEY PAYMENTS FOR FINAL GOODS
  11. 11. The Circular Flow of Output and Income <ul><li>Circular Flow of Physical Goods and Money Income </li></ul>Goods and Services Factors of Production (land, labor, capital, entrepreneur) Payments of Factors (rent, wages, interest, profit) Payment of Purchase of goods and services. Household Sector Business Sector
  12. 12. The Circular Flow of Goods & Income of Households & Firms with the Government & Foreign Countries GOVERNMENT HOUSEHOLDS PRODUCING UNITS FOREIGN COUNTRIES Income Payments of Wages, Rent, Dividends, & Interests Purchase of Goods & Services Economic Resources Taxes Taxes Wages, Transfer Payments Purchase of Goods & Services Goods & Services Money Payments for Imports Money Payments for Exports
  13. 13. Implications of the Circular Flow of Economic Activity <ul><li>The goods, resources, and money payments will flow as long as households continue to consume, and as long as firms continue to produce. </li></ul><ul><li>That since goods and resources flow in exchange for payments, the rate of payments flow will in the end be the same. Money is the inducing factor, and the pillar of the price system. Without it, there is no price system. </li></ul>
  14. 14. Inflows and Outflows <ul><li>Outflows (factors that decrease the level of economic activity) </li></ul><ul><ul><ul><li>Savings </li></ul></ul></ul><ul><ul><ul><li>Taxes </li></ul></ul></ul><ul><ul><ul><li>Imports </li></ul></ul></ul><ul><li>Inflows (factors that increase the level of economic activity) </li></ul><ul><ul><ul><li>Investment </li></ul></ul></ul><ul><ul><ul><li>Government Spending </li></ul></ul></ul><ul><ul><ul><li>Exports </li></ul></ul></ul>
  15. 15. The Circular Flow of Economic Activity Reflecting The Outflows & The Inflows HOUSEHOLDS PRODUCING UNITS Income Payments of Wages, Rent, Dividends, & Interests Purchase of Goods & Services Economic Resources Goods & Services IMPORTS TAXES SAVINGS EXPORTS EXPENDITURES INVESTMENTS Foreign Countries Government Banks
  16. 16. <ul><li>Outflows are difficult to control because they are dependent on income. When income increases, we expect savings, taxes, and imports to increase. </li></ul><ul><li>Inflows are easier to manipulate. The proper use of policy enables the government to encourage exports and investments and to increase its expenditures when it desires to expand the flow of economic activity. </li></ul>
  17. 17. Three Sets of Policy <ul><li>Monetary policy </li></ul><ul><ul><ul><li>Affects the savings and investment. </li></ul></ul></ul><ul><li>Fiscal policy </li></ul><ul><ul><ul><li>Controls taxes and government expenditures. </li></ul></ul></ul><ul><li>Trade policy </li></ul><ul><ul><ul><li>Affects a country’s exports and imports. </li></ul></ul></ul>
  18. 18. - THE END - <ul><li>Any questions? </li></ul><ul><li>GOOD DAY!!!  </li></ul>

×