The circular flow of income

Learning objectives

Describe the circular flow of income between households and firms in a closed economy, then add the government and the international sector

Identify the injections into the circular flow (investment, government spending, exports) and the leakages from it (saving, taxation, imports)

Explain why national income is in equilibrium when injections equal leakages and why it rises or falls when they differ

Analyse how a change in an injection or a leakage, such as a fall in exports or a rise in saving, changes the level of national income