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Circular Flow, NI & Aggregates
Circular Flow, NI & Aggregates
Circular Flow, NI & Aggregates
A K M Nazrul Islam
Associate Professor
Households Industry
Factor Payments
Factors for Goods & Services
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In the previous model, it is assumed that household sector
and firms do not save at all. But in actual practice it does
not happen so. Households save some part of their income
for various reasons like precautionary reasons,
transactionary reasons &speculative reasons.
Factor Services
Savings Borrowings
Capital
Households Market Industry
Savings
Borrowings
Factor Payments
Payment For Goods & Services
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Three-Sector Model With Savings
Government Su
b
In sid
nts dir ie
e ec s
Borrowings
y m tT
Savings
Pa es
ax
x es
Ta
Savings Borrowings
Capital
Households Market Industry
Savings
Borrowings
Factor Payments
Payment For Goods & Services
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Four-Sector Model
Govt. receives
Factor Services loans
Rest of the world
Interest paid
e s Government
r rvic Su
o In bs
a ct l Se dir idi
es
r +F cia es ec
Borrowings
fe
s nts So Tax tT
Savings
Exports
Imports
n
a e + ax
Tr ym ent rect es
Pa ym Di
Pa Savings Borrowings
Capital
Households Market Producers
Savings
Borrowings
Factor Payments
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Withdrawals & Injections
In reality, however, there are leakages from and
additions to the circular flows of income and
expenditure
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Withdrawals
Withdrawal is the amount that is set aside by the households and
the firms and is not spent on the domestically produced goods and
services over the period of time. Example a household sets aside a
part of income for old age or against the loss of job.
Saving is a withdrawal.
Firms may also withhold a part of their total receipts and may not
return it to the circular flows in the form of factor payments in
anticipation of depression
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Injections
Amount that is spent by households and firms in
addition to their incomes generated within the regular
economy
INJECTIONS
Export
expenditure (X)
Investment (I)
Government
Consumption of expenditure (G)
Factor domestically
BANKS, etc GOV. ABROAD
payments produced goods
and services (Cd)
Import
Net expenditure (M)
Net taxes (T)
saving (S)
WITHDRAWALS
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National Income
National Income (NI) refers to the money value of all final
goods & services produced by residents of a country while
working both within or outside the domestic territory in an
accounting year.
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National Income- Meaning
It is a sum total of factor incomes accruing to normal
residents of a country within an accounting year.
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DEFINITIONS
Central Statistical Organization (CSO, India): -
“National Income is the sum total of factor
incomes earned by the normal residents of a
country in the form of wages, rent, interest and
profit in an accounting year”.
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National Income -Excluded Items
NI excludes sale & purchase of second hand goods.
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Gross Domestic Product (GDP) Gross National Product (GNP)
It refers to the money value of all It refers to the money value of all the
final goods & services produced final goods & services by the normal
within the domestic territory of a residents of a country.
country .
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Net Domestic Product at Market Net National Product at Market
Price (NDPMP) Price (NNPMP)
It refers to the money value of all It refers to the money value of all the
final goods & services produced final goods & services by the normal
within the domestic territory in a residents of a country.
year.
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Net Domestic Product Net Domestic Product (NDPFC)/
(NDPMP) Domestic income
Net Indirect Taxes are included in Net Indirect Taxes are not included
it. in it.
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