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ECO 285 The Circular Flow Model

ECO 285 The Circular Flow Model. Dr. Dennis Foster – Spring 2014. Additional References. Wikipedia on the Circular Flow of Income St. Louis Fed video The circular flow model critiqued YouTube video. CF I – 2 sectors & no saving. Consumption Expenditures. Goods and Services.

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ECO 285 The Circular Flow Model

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  1. ECO 285The Circular Flow Model Dr. Dennis Foster – Spring 2014

  2. Additional References • Wikipedia on the Circular Flow of Income • St. Louis Fed video • The circularflow model critiqued • YouTube video

  3. CF I – 2 sectors & no saving Consumption Expenditures Goods and Services Businesses (Bus) Households (HH) Factor “rental” – land, labor, capital Income to factors Real flows. Money flows.

  4. CF II – 2 sectors & saving Consumption Expenditures Goods and Services Investment Saving Financial Intermediaries Businesses (Bus) Households (HH) Factor “rental” – land, labor, capital Income to factors Real flows. Money flows.

  5. CF II* – 2 sectors & saving Consumption Expenditures Goods and Services Investment Saving Financial Intermediaries Businesses (Bus) Households (HH) I Investment Goods Factor “rental” – land, labor, capital Income to factors Real flows. Money flows.

  6. CF III – 3 sectors & saving Gov’t. Government Expenditures Taxes Gov’t. G & S C Goods and Services Investment Saving Financial Intermediaries Businesses (Bus) Households (HH) I Investment Goods Factor “rental” – land, labor, capital Income to factors Real flows. Money flows.

  7. CF III – money flows only Gov’t. Government Expenditures Taxes C Investment Saving Financial Intermediaries Businesses (Bus) Households (HH) I Income to factors Money flows.

  8. CF IV – 4 sectors; money flows Gov’t. Government Expenditures Taxes C Imports Foreign Sector Businesses (Bus) Exports Households (HH) I Saving Investment Financial Intermediaries Income to factors Imports spending Exports spending Money flows.

  9. Why the Circular Flow Model? 1. To show how the different sectors of the economy interact with one another. 2. To measure the level ofeconomic activity. --Can’t measure physical flows. --Can measure money flows. --Can measure expenditures or income.

  10. GDP & Data • GDP = Income = C + I + G +(Ex-Im) • NBER business cycle page • FRED recession graph • Economic Report of the President

  11. ECO 285The Circular Flow Model Dr. Dennis Foster – Spring 2014

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