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INCOME THEORY
The Circular Flow of Income Between
Households and Firms
National Income
• refers to the value of income from the sales of
goods and services in a country.
• It is the aggregation of the incomes received
by resource owners, specifically wage/salary,
interest, rent and profits, including whatever
income is earned from abroad.
Investments
• is an expenditure on real capital goods
which refer to physical goods, but does
not include investments of commercial
banks/purchases of existing capital goods
like a seven year old school building.
Savings
• refer to that part of income not spent on
consumption.

Consumption
• refers to the total expenditure in an economy
on goods and services which are used up
within a specified, short period of time.

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BASIC FINANCE - Income theory

  • 2. The Circular Flow of Income Between Households and Firms
  • 3. National Income • refers to the value of income from the sales of goods and services in a country. • It is the aggregation of the incomes received by resource owners, specifically wage/salary, interest, rent and profits, including whatever income is earned from abroad.
  • 4. Investments • is an expenditure on real capital goods which refer to physical goods, but does not include investments of commercial banks/purchases of existing capital goods like a seven year old school building.
  • 5. Savings • refer to that part of income not spent on consumption. Consumption • refers to the total expenditure in an economy on goods and services which are used up within a specified, short period of time.