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Essay / Research Paper Abstract
This 10 page paper explains the circular flow of income and the interactions among markets and agents in closed and an open macroeconomic system. The paper the explains three 3 ways of measuring the national income and output and outlines the limitations of this measures use as an indicator of a nations welfare. The bibliography cites 3 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEcirflow.rtf
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Unformatted sample text from the term paper:
When looking at the model it is important to realise that this is very simplified, but even so this is a good basis to understanding how income flows between companies,
households, and the way that this is impacted and will impact on government and financial sectors as well as the forgiven sectors. Income may be seen as moving around
the economy in a circular motion. The level of the income that flows from households back into the firms is influences by three main leakages and also injections of cash.
A leakage is where money may escape the circular flow between different expenditures and an injection is where capital is put back into the economy (Murphy, 1993).
Leakages will impact on the level of income that a household can have to spend on goods or services in the economy. The first of the
leakages is taxation (Nellis and Parker, 2000). Taxation takes money from earnings of both companies and individuals in different forms. These may e direct taxes, such as income tax or
corporation taxes, or indirect taxes such as sales taxes (Nellis and Parker, 2000). However, this is money that will go to the government and reduces the level of income a
company or individual has left to spend. Keynes argued that one way of stimulating an economy that was suffering was to lower
tax rates. The basis of this argument was the reduction of one leakage in order to allow money to remain in the economy and create more demand. This will keep
money in the economy and help increase the growth. The over taxing of a population is known to lead to not only dissatisfaction but also can result in depressing an
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