Businesses on the other hand, borrow capital from financial institutions for further investments hence inject money into the flow thus offsetting the withdrawals. Withdrawals in the circular flow are therefore equal to injections other factors like prices held constant.
Withdrawals are denoted using letter W and include savings(S), taxes (T) and imports (M). Injections are denoted by J and include investments (I), government spending (G) and exports (E). The simple equation of Keynes model therefore is; W=J; S+T+M=I+G+E. Total income (Y) is equal to total expenditure (E) and is equal to total output as it is assumed that all income is spent on consumption Y=G+E+I+C where G, E, I are assumed constant (Siilats, 2010). The diagram below illustrates the circular flow of income by Siilat.
A government injects money into the circular flow through its various activities. It produces goods and services which are consumed by households and firms and households acquire more income through employment in production process. The government is also an employer and pays wages which go into households and is a consumer of goods and services (Mcdonald, 1999). These expenditures by government are direct or indirect and are stimulus in the cycle. They increase demand and consequently production of more goods thus increasing output and employment and in long-run high income leads to savings which is a withdrawal thus maintaining equilibrium where withdrawals is equal to injections.
A government may decide to apply its fiscal policy to regulate the economy by cutting its expenditure so as to minimise borrowing. Government expenditure is an injection in the circular flow of income that means a cut in direct expenditure will result in decline in injections in the flow (Bluedorn, 2005). A cut in provision of essential services such as health, education translates into households increasing their ...
Cite this document
(“W/J approach to circular flow of income in an economy (Business Essay”, n.d.)
Retrieved from https://studentshare.net/miscellaneous/396037-wj-approach-to-circular-flow-of-income-in-an-economy-business-enviroment-module
(W/J Approach to Circular Flow of Income in an Economy (Business Essay)
“W/J Approach to Circular Flow of Income in an Economy (Business Essay”, n.d. https://studentshare.net/miscellaneous/396037-wj-approach-to-circular-flow-of-income-in-an-economy-business-enviroment-module.
Multinational companies have really focused on investing in the developing countries, most especially in Africa. One of these firms is the iomart IT Company in the UK. It has adopted an approach of expanding its operations all over so as to maximize on its revenue.
This paper aims at demonstrating how a firm might use environmental scanning to make sense of the industry in which it operates. It also aims at comparing how the framework might differ for firms of different sizes and scales.
Environmental scanning is defined as the acquisition and use of information about events and trends in an organization's external environment, the knowledge of which would assist management in planning the organization's future courses of action (Choo & Auster, 1993; Aguilar, 1967).
This can be both negative and positive. In conclusion, the paper highlights the inter-relationships between International Monetary Fund and the World Trade Organization. It also talks about what relationship other organizations like The World Bank have in common with the WTO.
It further discusses the structure, operation and influence of local government. The report also discusses the legislative process as it affects hospitality industry at both local and national level. The report aims at the observation and analysis of the impact of socio-economic change on the development of commercial organisations in a business and services industry context.
“Law is meant to include federal or state enacted laws or statues, the rules of federal and state regulatory bodies promulgated to give practical effect to enacted statutes and common law. Common law is that body
In regard to invisible hand theory, everybody acts on his or her own interests creating demand for services and goods that coerce other people to deliver those services and goods in efficient manner where he
The FDI outflows comprise of outward direct investments that are made by residents within the reporting economy to the external economies. These are expressed as GDP shares. While some countries remain important recipients of
These units supply each other with elements that assist in the circular flow of income. Firms avail to the consumers manufactured goods and services at a particular price. In exchange, the customers spend on these products for the price appropriated
3 Pages(750 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic W/J approach to circular flow of income in an economy (Business Enviroment Module) for FREE!