Circular Flow
The circular flow of income is a model representing how money and goods flow in an economy. Firms pay wages to workers who spend on goods, revenues return to firms to pay wages. Injections (investment, exports, government spending) add to flow; withdrawals (savings, imports, taxes) reduce it.
Real World
During the 2020 lockdowns, UK household savings surged to record levels as consumers could not spend — this withdrawal from the circular flow caused GDP to fall by 9.7%, the largest annual decline in over 300 years.
Exam Focus
Draw and label the circular flow diagram clearly — examiners expect injections and withdrawals shown as separate arrows entering and leaving the flow.
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