gcse economics - the big picture: circular flow of income

This shows how money circulates in a simple economy.

Initially households spend money on goods and services produced by firms. Households get the money to buy these goods and services by supplying the factors of production (land, labour, capital and enterprise).

ADDING TO THE CIRCULAR FLOW AND THE VALUE OF THE ECONOMY

- Businesses may invest money into new equipment or new factories. This allows extra production to take place.
- The Government may spend £100 mn on a roadbuilding project. This creates economic activity
- An export is a sale of a good or service to a foreigner. This brings money into the economy.

LOWERING THE CIRCULAR FLOW AND THE ECONOMIC ACTIVITY

Savings mean that people are not spending money on goods and services
Taxes are taken out of peoples and businesses incomes. This money cannot be spent on goods and services.
Imports are purchases from abroad. The money leaves the country

ACTION

a. Try to draw the full circular flow without looking at the diagram

 SMART THINKING

b. Multipler: If there is an addition of £3million (govt spending or investment) into the circular flow it may create £9 million of economic activity. This is a multiplier of 3. How does this happen?

These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email

 

© Tutor2u Limited All Rights Reserved. All materials published on www.tutor2u.net are protected by copyright and may not be reproduced in part or in whole, for whatever reason, without the prior written permission of tutor2u. The use of tutor2u content for commercial gain of any kind is strictly forbidden. We reserve the right to take legal action against any party or parties found to have breached our copyright. Damages and other remedies are available to us in respect of copyright infringements. About tutor2u tutor2u is a leading publisher of e-learning resources for Economics, Business, Politics and related subjects. Our materials are used by over 3,500 schools and colleges in the UK and in educational institutions in over 85 other countries. tutor2u was named Online Learning Resource of the Year at the prestigious BETT Show - the World's leading educational show.

Privacy & terms of Use Our privacy policy is published here: www.tutor2u.net/privacy.asp. The terms of use of this website are set out here: www.tutor2u.net/terms.asp. " tutor2u" is a registered trade mark.

Contact us The sales team at tutor2u can be contacted by phone on 0844 800 0085. Orders can be faxed to 01937 529236. The office address is: Tutor2u Limited, Boston House, 214 High Street, Boston Spa, UK LS23 6AD   To contact tutor2u by email, please use this form: Tutor2u - Contact Form

Teacher Newsletters & Subject Blogs tutor2u publishes a variety of free teacher newsletters and blogs for our featured subjects. Teachers can access these materials here: Teacher Newsletters  A daily RSS feed for each of our free subject blogs can be accessed here