2. The circular flow of income The interdependence of goods markets and factor markets
3. The interdependence of goods and factor markets FIRMS (suppliers of goods and services, demanders of factor services) HOUSEHOLDS (demanders of goods and services, suppliers of factor services)
4. The interdependence of goods and factor markets P Q P Q (1) Consumer demand (4) Factor supply (3) Factor demand (2) Producer supply O O Q 1 P 1 Q F 2 P F 2 Q 2 P 2 P F 1 Q F 1 D 2 D 2 £ £ £ £ Factor services Goods Goods Factor services S S D 1 D 1
5. The circular flow of income Consumption, injections, withdrawals and equilibrium
6. The circular flow of income Firms Households Factor payments Consumption of domestically produced goods and services (C d )
7. Factor payments Consumption of domestically produced goods and services (C d ) The circular flow of income WITHDRAWALS INJECTIONS Investment ( I ) Government expenditure ( G ) Export expenditure ( X ) BANKS, etc Net saving ( S ) GOV. Net taxes ( T ) ABROAD Import expenditure ( M )
