Edexcel A Level Economics A:复习笔记2.4.1 National Income

The Circular Flow of Income

  • The circular flow of income is an economic model that illustrates money flows in an economy
    • There is a simple model which shows the money flows between households and firms
    • There is a more complex model which adds in other economic agents including the government, financial sector and foreign trade (net exports)


A diagram showing the simplified Circular Flow of Income between households and firms


Diagram Analysis

  • Households own the wealth in the economy
    • These are the factors of production
  • Households supply their factors of production to firms and receive income as a reward
    • They receive rent for land, wages for labour, interest for capital, and profit for enterprise
    • With this income, they purchase goods/services from firms
  • Firms purchase factors of production from households
    • They use these resources to produce goods/services
    • They sell the goods/services to households and receive sales revenue
  • National income is the value of the output of an economy over a period of time
    • It can be calculated using the income approach or expenditure approach
    • Expenditure = income
  • Income is a flow in the economy, whereas wealth is a stock of assets that can be used to generate income