Created 4/9/1998
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The Expenditure Side of the Circular Flow

J. Bradford DeLong

On the so-called expenditure side, the flow of spending from housheolds to businesses proceeds along three channels. First there is household consumption spending. Second there is investment spending--savings by individuals not diverted to funding a government deficit or to funding net overseas investment that wind up in the hands of businesses that use them to expand the economy's stock of productive capital. Third there is the government: it collects money in taxes (and returns some of it to households in transfer payments) and uses it to buy goods and services.

In an open economy, net exports--the difference between exports and imports--makes up a fourth balancing item of total expenditure.

The Circular Flow     The Expenditure Side of the Circular Flow     Flows: Incomes, Expenditures, Factors, and Goods  

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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