Podcast 3: Circular Flow Model Of Economic Activity

When we calculate GDP in the economy, we are measuring the value of total production/ total expenditures, on the economy’s output of goods and services. Furthermore, we are also measuring the total income of everyone in the economy. What is the reason? Because every dollar of spending by some buyer ends up being a dollar of income for some seller. In short, for an economy as a whole, expenditures must equal income. The circular flows shows the flow of money in the economy.

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