12. In a monetary economy, households, as resource owners, sell their resources to business and, as consumers, spend the resource income by buying goods and services. Businesses must buy resources to produce goods and services. Their finish products are then sold to household in exchange for consumption expenditures or revenues on the part of business. These revenues are used to purchase additional resources to maintain the circular flow
13.
14.
15.
16. Savings (S), taxes (T) and imports (M) are withdrawals from the flow. Originating from outside the circular flow takes the corresponding form of investment (I), government expenditures (G) and proceeds from exports (X) to the res of the world. For the economy to be equilibrium, the outflows must equal tin inflows. (S+T+M = I+G+X) Imbalances that oftentimes exist between outflows and inflows. Introduce changes into the circular flow, and therefore affect the whole economy. > outflows ,< inflows – production, employment, income and consumption fall < outflows, > inflows – output, employment, income, expenditures rise. However, these flows do not remain the same year in and year out. Their effect on the circular flow and on national income depends upon how much the outflows and inflows grow. If they are unequal as a consequence of differences in growth, then there is usually policy intervention to bring to bring them back to equal each other or equilibrium.