NATIONAL INCOME The national income is the money value of the total amount of goods and services produced in country over a period, usually a year. It is variously called GDP, GNP. The Circular Flow of Income shows how the national income is created and how it is measured. The circular flow of income can be explained using a simple model with the following assumptions: 1. Only 2 groups/sectors: households and firms: no international trade, no gov't. 2. Households spend all their incomes on goods: no savings, no taxes. 3. Firms do not retain any profits for re-investments, and they do not pay taxes. Factors services: they are paid factor incomes: rent, wages/salaries, interests, profits.(upper section) Firms supply goods/services: they receive payments by way of consumer spending.(lower section) In such a simple economic model, what is earned is what is spent; what is spent is equal to the value of goods and services i.e. income = expenditure = output. In the real world situation, 1. Gov't enters into the economy both as a producer and a consumer......

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