The circular flow of income is a model that helps explain a very simplified manner the basic operation economic activity . This model helps us understand between who is an exchange, ie those involved in the economy and what these exchanges.
The simplest model of circular flow of income represents an economy with only two actors: the households and businesses . There are other agents, the State and Foreign sector, which, through taxes and transfers made by the first to households and businesses and exports and imports made by the second influence in the circular flow of income.
The issue is to analyze how income moves in an economy . Then try to summarize a curious explanation given an American economist at one of his lectures on this topic. There was a businessman in the city is presented in a remote village in a state of interior. This "bombshell" has been moved to different forms in all languages \u200b\u200b... but allows to assimilate the concept of "circular flow of income" in an unforgettable way.
condensed version of "English" (multiple versions): This speaks of the external sector (imported something) and public sector (paid something the council) ... always with a wry sense of humor:
American comes a perfect dress, suit and tie, a village in Castile and asked a neighbor, in a perfect Castilian, where there is a hotel. He replied that the people no hotel, but in the Plaza Mayor is a very good pension.
our "tourist" park their big car (American) in the Plaza and into the board. Presented and asked the innkeeper if you have a "suite" says no, but on the fourth floor is a large room with bathroom. Mister Smith says it comes with idea to settle in the town to mount an electronic components factory, he left his passport and tickets 20 100 Euros (big!) After asking if it would be enough to settle about three months (he had led to price 25 Euros / night), but first up to see the room and cool.
Antonio, the host, with tickets in hand is the opportunity to settle their accounts with the grocer, the butcher, the fishmonger, the baker, the carrier, the mechanic and even the rent should the council about the room that let you use for a meeting of travelers who came to paint the board.
The money was mechanical dampers to transport imported, which in turn was in the bakery and grocery. The council had outstanding bills with butcher. The baker paid the fishmonger, who, in turn, made peace with the mechanic ....
After an hour and twenty minutes between a good looking girl on the board and leaves on the counter to 20 100 Euro bills owed to the landlord for the use "regular" room in these past few months ... because almost everyone trusted the people!
American Finally cooling down after he tells the innkeeper that most prefer to buy a house, leaves a 50 note and retrieves the 20 notes of 100 and his passport.
When an economy is in crisis is because it will deflate both consumption because there is no revenue because businesses (shops etc.) do not sell (and lay off workers), as their production due to lack of confidence . It is at this point that accelerator is needed to allow the re-launch complicated machinery, its gears in motion ...
Zabaleta Mark
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