Question

Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands through its banks. Assuming that all other required institutions in an economy are prevalent in this island, discuss the circular flow of income and spending in Dominion Island.

Answer 1

Explanation:

hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands through its banks. Assuming that all other required producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands. ..........

Answer 2

Explanation:

In Dominion island, the major sources of income is from trading the goods of gold and cotton which they produce. So the cash flow of income would come from trading business, and from that the people would be able to make up for their expenses. The cash flow out would be made when the people would purchase other necessary things for their living from the neighbouring island