CIRCULAR FLOW

OF ECONOMIC
ACTIVITIES
Prepared By :- Syed Saif Ali Zaidi
Basic Economic Activities

1. Basic Production :-
:- The use of economic resources in the certain of goods and services for the satisfaction of human wants.
2. Consumption :-
:- The using of good and services by consumer purchasing or int the production of other goods.
3. Employment :-
:- The use of economic resources in production ; engagement in activity.
4. Income generation :-
The production of maximum amount an individual can spend during a period without being any worse off.
TWO ECONOMIC UNITS

◦HOUSEHOLD ◦FIRM
◦ BASIC PRODUCING UNIT
◦ BASIC CONSUMING UNIT
Implications of the circular flow of Economic
activity

◦ 1. The goods, resources and money payments will flow as long as households continue to consume and as long as firms
continue to produce.
◦ 2. That since goods and resources flow in exchange for payments, the rate of payments flow will in the end be same
,money is the inducing factor, and the pillar of the price system without it there is no price system.
Inflows and Outflows
Outflows (factors that decrease the level of Inflows(factors that increase the level of economic activity)
economic activity)
◦ 1.INVESTMENT
◦ 1.SAVINGS
◦ 2.GOVERNMENT SPENDING
◦ 2.TAXES
◦ 3.EXPORTS
◦ 3.IMPORTS
OUTFLOWS & INFLOWS
◦ OUTFLOWS
These are difficult to control because they are
dependent on income .When income increases ,
we expect savings , taxes and import to
increase.
◦ INFLOWS
These are easier to manipulate. The proper use
of policy enables the government to encourage
exports and investments and to increase its
expenditure when it desires to expand the flow
of economic activity.
THREE SETS OF POLICY

◦ MONETORY POICY :- Affects the savings and investments.

◦ FISCAL POLICY :- CONTROL TAXES AND GOVERNMENTEXPENDITURES
◦ TRADE POLICY :- AFFECTS A COUNTRY’S EXPORTS AND IMPORTS