The spendthrift economy, Managerial Economics

The Spendthrift Economy

This assumes a circular flow of income in a closed economy with no Government sector and no foreign trade.   It also assumes the existence of two sectors, namely the sector of households and the sector of firms.  Firms make the commodities that households consume.  They purchase the services of factors of production from the household that own them, paying wages, rent, interest and profits in return, and then use the factors to make commodities.

It is assumed firms sell all of their output to households and receive money in return.  All of the money received is in turn paid out to households.  Part goes to households that sell factor services to firms, and the rest is profit paid out as Dividends to the owners of the firm.  In short, neither households nor firms save anything in the spendthrift economy; everything that one group receives goes to buy goods and services from the other group.  Expenditure is the rule of the day!

1689_spendthrift economy.png

Now, suppose we wish to calculate the Total Value of the economy's output.  We can do this based on either side of the circular flow shown in the figure above.  The output-expenditure approach uses calculations based on the flows on the right hand side of the figure, while the input-factor income approach uses calculations based on the flows on the left-hand side of the figure.

Posted Date: 11/28/2012 6:36:07 AM | Location : United States







Related Discussions:- The spendthrift economy, Assignment Help, Ask Question on The spendthrift economy, Get Answer, Expert's Help, The spendthrift economy Discussions

Write discussion on The spendthrift economy
Your posts are moderated
Related Questions
discuss baumols dynamic models

The Microeconomic objectives of government These are the policies which are concerned with the allocation and distribution of resources to maximize social welfare. 1. Allo

Dynamics  of Unemployment and  Real  Wages through Productivity Shocks   The model  that you  are  studying here  is  in  the  tradition of  the  real  business cycle theory th

how realistic is the sales maximisation model from your experience with business objectives as persued by firms

williamson''s model describe

Case study for consumer behavior using indifference curev

Ann owns a lawn-mowing company. She has 400 lawns she requires to cut every week. Her weekly revenue from these 400 lawns is $20,000. Given an 18-inch-deck push mower, a laborer ca

Factors affecting the long run trend of the Terms of Trade for developing countries Most Third World countries have been faced by a fall in their terms of trade over the long

Question: a. What are the basic attributes in designing a good tax system? b. Explain briefly how tax systems affect economic efficiency. c. The trade unionists advocat

Q. Explain the Leibenstein model? Leibenstein (1966) sees a firm's norms or conventions, dependent on its history of management initiatives, labour relations and other  factors