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

Equilibrium and disequilibrium in balance of payments, Equilibrium and Dise...

Equilibrium and Disequilibrium in the Balance of Payments If on the current account , the value of exports is equal to the value of imports, the balance of payments is said t

Calculate the equal amounts of capital and labor, The production function o...

The production function of the personal computers for DISK Company is given by Q = 10 KL where Q is the number of computers produced per day, K s the hours of machine time,

Fixed exchange rate, Country A has a fixed exchange rate with country B. Du...

Country A has a fixed exchange rate with country B. Due to a recession in country B, demand for A's goods falls. Draw what would happen on the graph below. On the graphs, draw what

Economic situations or decisions, Imagine of these concepts (markets, elast...

Imagine of these concepts (markets, elasticity, production, costs, market structures).  Take one or two of those concepts and use it to examine and understand economic situations o

Pilgrim Bank Case, Your discussion assignment this week is associated with ...

Your discussion assignment this week is associated with the Pilgrim Bank case. Using the attached file, answer the following questions: A. Is there a difference in profitability ac

Determine the perfectly competitive firms profit, 1. Suppose in a perfectly...

1. Suppose in a perfectly competitive industry the market demand and supply forces combine to produce a short-run equilibrium price of Rs 70. Suppose that a firm in this industry h

Consumer welfare, '' monopoly is good for consumer welfare" is this crrect

'' monopoly is good for consumer welfare" is this crrect

Marginal cost, A firm in a perfectly competitive market invents a new situa...

A firm in a perfectly competitive market invents a new situation of production that lowers its marginal costs.  What happens to its output? What happens to the price it charges?

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