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. No diagram is required

Answer 1

Explanation:

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 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 .

Answer 2

The circular flow of income and spending shows connections between different sectors of an economy.

Explanation:

• The circular flow shows how national income or Gross Domestic Product is calculated .
• Wages and salaries going to people in work.
• Leakages (withdrawals) from the circular flow
• Not all income will flow from households to businesses directly.
• The circular flow shows that some part of household income will be:
• Put aside for future spending, that is savings (X) in banks accounts and other types of deposit .
• Paid to the government in taxation (Y).
• Example of taxation is income tax and national insurance .
• Spent on foreign-made goods and services, that is imports (M) which flow into the economy .

To Learn More...

1.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.

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