Edexcel A Level Economics A:复习笔记2.4.1 National 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