Page 68 - Macroeconomics. book docx_Neat

Firms use the factors of production provided by households to produce goods and

services. They pay income to households and depend on household spending to

continue production. Increased demand leads to higher production and employment.

Role of Government

The government collects taxes and spends on public services such as education,

healthcare, and infrastructure. Government spending helps stabilize the economy and
supports growth.

Role of the Foreign Sector

The foreign sector includes exports and imports. Exports bring income into the

economy, while imports represent spending outside the economy. International trade

increases choices and efficiency.

Markets
The circular flow works through the product market and the factor market. In the

product market, firms sell goods and services while households buy them. In the factor

market, households sell factors of production and firms buy them.

6-2 Leakages and Injections

Saving, taxes, and imports are leakages that reduce the flow of income.

Investment, government spending, and exports are injections that increase economic

activity.

Balance between leakages and injections is important for economic stability.

6-3 Importance of the Circular Flow

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