4.2 Introduction to the circular flow of income

In this chapter you will learn how to:

• define the circular flow of income
• explain the difference between the circular flow of income in a closed economy and in an open economy: the flow of income between households, firms and the government and the international economy
• analyse the impact of injections and leakages on the circular flow of income
• identify the difference between the country’s income being in equilibrium and being in disequilibrium.