The Nature of the Circular Flow of Income - Custom Essay

For this TMA you are required to write a structured essay of no more than 1000 words. This means that your TMA should be in three steps:

Step 1:
Review the chapter material. This TMA is about the nature of the circular flow of income, so you may want to review the section “The Circular of Income”, Economics and Economic Change. Provide brief explanation about the circular flow showing its importance in measuring economy. 

Step 2:
Use the above diagram to illustrate the interaction of firms, government and households in markets. Explain the flow of spending and money in the economy. How can we measure GDP as the total income received by households? What is the relationship between firms and the government? How the interaction is made between the financial system and the rest of the world? 

Step 3:
Economists use GDP to measure total production in the economy. For that purpose, we would like GDP to be as comprehensive as possible. Discuss whether there are shortcomings in GDP as a measure of total production and as a Measure of well-being.