The spendthrift economy, Managerial Economics

Assignment Help:

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.


Related Discussions:- The spendthrift economy

Unemployment, Analysis of unemployment in relation to economics

Analysis of unemployment in relation to economics

Relation between average cost and marginal cost, Q. Relation between averag...

Q. Relation between average cost and marginal cost? Relationship between MC and AC are the following: If MC is below AC then AC should be falling. This is because, if MC

Define the analysis of mathematical functions, Time domain: Time domain is...

Time domain: Time domain is a term which is used to define the analysis of mathematical functions or physical signals, with respect to time. In the time domain, signal or function

Equilibrium in a two commodity market, Equilibrium in a two commodity marke...

Equilibrium in a two commodity market Let us consider a two-commodity market model in which the two commodities are related to each other.  Let us assume the functions for bot

Explain systematic failures of government, Question 1: (a) How do econ...

Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst

Elasticity, determinants of price expectation of elasticity

determinants of price expectation of elasticity

Clark''s dynamic theory, According to J.B. Clark's profits arises in a dyna...

According to J.B. Clark's profits arises in a dynamic economy, not in a static one. A static economy is one in which there is absolute freedom of competition population and capital

Efficiency-wage theories of unemployment, EFFICIENCY-WAGE THEORIES OF UNEMP...

EFFICIENCY-WAGE THEORIES OF UNEMPLOYMENT   Efficiency wage  theories are clearly non-Walrasian theories in as much as they postulate  payment of  wages that  are  higher than m

Short run cost , What will be the table of total cost function?

What will be the table of total cost function?

ROLE OF SCARCITY, ROLE OF SCARCITY IN MANAGEMENT DECISION MAKING

ROLE OF SCARCITY IN MANAGEMENT DECISION MAKING

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd