Econ-Crisis #1 (The Circular Flow of Money)

VOICE NARRATOR: From the symbols, we use the silver hexagon for any "physical capital", so it can represent a nation, or all nations.

This is not much help for drawing maps, perhaps, but we can use them to show connections, such as the United States and its largest trading partners.

Each country's exports is another country's imports.

To see the economic crisis, we must also look inside, at the macroeconomic connections. Let's do them one at a time.

We will start with violet for all the people, called "households". And we'll use silver again, this time for all business firms.

People apply their own energy in effort and labor. They get money in return, as wages and salaries.

They spend the money on the goods and services that are produced by the businesses.

This is the basic cycle of money that pays for work and products.

Now, we'll use the red hexagon for all banks and finance.

Households save some of the money. This must reduce consumer spending, but no worry, because the savings is used when businesses borrow it for capital investment, to expand the whole thing. We use the black "info" arrow for the debts. The loans and savings are paid back with interest.

Finally, we'll use a different shade of violet to stand for government.

Government collects taxes; and buys goods and services, hires employees, and makes transfers. It borrows money by selling bonds, which we will color blue. So these three prices are different interest rates.

Now, government purchases of goods and services is part of the Gross Domestic Product.

GDP equals consumer spending plus investment spending plus government spending, plus we tally up international trade, to add all exports, minus imports.

This gives the total product of the economy, minus imports.

We'll use a different shade of red for foreign currencies.

When we add the other flows, we have the basic arena of macroeconomics.

Category:

Education

Tags:

• macroeconomics
• GDP
• economic
• crisis
• financial
• credit
• US
• debt
• exports
• imports
• foreign
• trade
• international
• ecolanguage
• cycle
• of
• money
• interest
• rates
• taxes

[leffakis2032]

Great informative video!

[leearnold]

@leffakis2032 -- Thank you! --Lee