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Putting it altogether.
Now we can return to the full view of the economy as shown here again.
For the economy to continue to function and provide jobs and goods for people, the money has to continue to go around.
Most of the theories we will examine later in the course are actually stories about what happens when this circular flow of money is interrupted, or if money gets diverted, or if it “leaks” out of the system.
For example, let’s think about a recession. A recession is a decline in GDP. If GDP declines, then spending must have declined (C, I, G, X,or M). If GDP declines, then Income will decline. If income declines (people lose jobs), then consumers have less money to spend, which could make the recession worse. But that’s for later Units!