Circular Flow Diagram

Circular Flow diagram also called the circular flow model is perhaps the simplest diagram in economics to understand the activity in the economy.

The circular flow model shows,firstly the relationship between households and firms,and secondly how they interact with one another in two markets,namely,in goods and services market and the factor of production market. Continue reading

Gross Domestic Product

To measure the economic performance of an economy,the first measure is the Gross Domestic Product or GDP in short. It is an important economic statistic/data because it provides the best estimate of the market value of all final goods and services produced by an economy in one year. It is usually used to measure and compare economic outputs of various countries around the world. It allows us to compare the total output level of one country to the total output level of another country with ease.

GDP is measured in monetary value or cash value of all final goods and services produced in a year . GDP measures two things at once- the total income of everyone in the economy and the total expenditure on economy’s output of goods and services. A higher GDP means more output from an economy and typically a stronger economy.  Continue reading