Outflows and Inflows of the Circular Flow

Circular Flow
Commonly referred to as sets of activities that are taking place in the economic system of our country.

The Outflows and Inflows

In the economic system, we may have experienced the decrease and increase of money supply in the economy. There are times that there are plenty of money and sometimes, almost scarce or few.
These kinds of phenomena are brought about by the Changes in the outflows and inflows in the economic system.

In Circular Flow ..
The household receives income from the firm. It is assumed that the incomes received by the households are all spent for consumption, and goods and services are all sold out.

In Circular Flow ..
Not all incomes are spent. There are factors

that affect the individual consumer is not

to utilize his income.

SAVINGS
The individual consumer tends to save for future use. Usually, he deposits his savings in the bank. Savings is an income not spent for consumption. Savings represent a non-use of output.

TAXES
It is compulsory contribution to support the government. Taxpayer, as good citizens, has the responsibility to contribute a fair share to the cost of the government People pay their taxes in accordance with the benefits they receive from the government. It is like buying goods and services in the market.

IMPORTS
These are goods brought by the Philippines from other countries. The country resorts to importation if our agriculture and industries cannot supply the necessary goods that the consumers need. No country can be completely self sufficient.

With the outflows taking place in the economy, we are bound to experience recession.

Outflows can be checked by bringing back the funds into the circular flow and this can be attained through investment, government expenditures and exports.

Investment
It constitute a spending decision that results in the use of output and productive resources Savings made by the depositors is invested into business by the bank. This may be in the form of business or lending the money to people who will likewise invest the money.

Investment
If investment equals the savings, then it offsets the outflows caused by the savings It is volatile because it is tied so closely to the state of business confidence and to expectations about the future performance of the economy.

Exports
Products purchased by the country from other countries are reciprocated by foreign countries by buying our products. When the Philippines export goods to other countries, payments are made and this money goes back into the circular flow

Investments, government expenditures and exports are inflows in our economy.

An INFLOW is a flow of income that brings back funds into the circular flow.

When outflows EQUAL the inflows, the level of economic flow is maintained. Too much outflows of money in our economy will result to DEFLATION

PRODUCER

Compete on the fewer pesos in the hands of the CONSUMERS

Drop in the price level and rise in the value of pesos.

DEFLATION may be described as plenty of goods chasing after too few pesos.
Too much inflows of money into our economy usually results to INFLATION, a decline in the value of money, with an upward movement of the price level.

When the amount of money in circulation increases, people have more money to spend. There will be an increase in demand. Therefore, consumers compete for available goods. They pay more pesos for the goods they want and consequently , an increase in price.

INFLATION then can be described as too much pesos going after a small number of goods

Inflows and outflows will never be equal. There will always be imbalance between the two, and the imbalance

Outflows and inflows will never be equal. There will always be imbalance between the two, and the imbalance can be checked by the economic policies of the government. The reasons for these imbalances are CONSUMERS BEHAVIOR and INCOME

Assignment : Essay Analysis

A. What are the effects of outflows and inflows in the Economic System of the Philippines?

A. Cite examples of outflows and inflows in our economy. Support your examples by expounding it through explanation.

Guidelines for the Essay Analysis:

It should be electronic copy. Use calibri font style with 11 as font size It should be double space. Use short bond paper. A minimum of 3 pages analysis and 5 pages maximun. Deadline : August 2, 2011 Failure to submit means zero.

REMINDER:

Be ready for a quiz next meeting