Video instructions and help with filling out and completing Will Form 2220 Circular

Instructions and Help about Will Form 2220 Circular

In macroeconomics we study the economy of one country then try to understand how two countries interact and trade and hopefully understand the global economy so today we are going to study the circular flow of income let's make things real as a poll imagine we're alone on an isolated island there's no government no trade no savings I told you it's simple let's only firms and households firms provide households with goods and services out of thin air nah firms gotta get factors of production from households it can be labor Len capital or face it some of us in households are going to be entrepreneurs so entrepreneurship for which we don't get freebies from firms we don't provide labor for free either so that's money flowing in the opposite direction households got to pay firms very good they get firms also got to pay households and the form of wages rents and trysts or profits but this is a little year we don't spend everything we earn in real life so let's add savings savings as money we don't spend so that's money flowing out hey savings don't just sit in bangs bangs and best and funds by lending to them cost funds need money to buy capital equipment or cover other costs of production so that's investments flowing into the economy Bravo awesome but this is a little too simplified so let's add government government by staff as well so there's money flowing in government gets money from taxes taxes so the Spani flowing out cuz for money we are paying as taxes we cannot spend it lastly countries interact with one another imagine this is an American economy let's at trade America imports stuff for example America can import shoes from China shoes flow from China into America and money spent on imports flows out of America into China America exports to America can produce software and exported to foreigners money even flows from foreign countries into America this is America's export earnings investments government spending and export earnings accord injections because money is flowing in savings taxes and import spending are called leakages or withdrawals because money leaks out of the system and hay injections and leakages are sort of related investments come from savings government spending comes from Texas America makes money from foreigners by exporting but furnace also make money from America when America imports Wow wonder it's circular flow of income that tells us roughly how that economy functions how do we measure the size of an economy band by measuring gross domestic product or GDP GDP is the total value of all final goods and services produced within the borders of a country during a given period why must it be final goods and services if you liked this video remember to like and subscribe next up measuring GDP output approach