Big questio n . Pre-assessment 1. Unemployment that result from a lack of aggregate demand is, a) Frictional unemployment b) cyclical unemployment. 2. Unemployment that is temporary and arises where people are in between jobs, a) Structural unemployment b) frictional unemployment. 3. An economy without any trade relations with the rest of the world is, a) Closed economy b) open economy. 4. An expansionary monetary policy will lead to, a) Deflation b) Inflation 5. Injections to the flow of income is, a)Savings b)Investments. Self-check 1. B 2. B 3. A 4. B 5. B Learning Objectives. Analyze and differentiate between the circular flow of income in a closed and open economy. Analyze the impact of injections and leakages to the circular flow of income in a closed and open economy. Learning Outcomes WTE: Students must be able to differentiate the components of circular flow of income in an open and closed economy. ME: Students should be able to analyze the circular flow of income in a closed and open economy. EE: Students could be able to evaluate the impact of injections and leakages to the CFY. G&T: Will be able to evaluate the impact of the inflow and outflow of money in to the CFY. SoD: Could be able to understand the process of flow of income to the macro economy. Key-terms Open economy: an economy that is involved in trade with other countries. Closed economy: an economy that does not trade with other countries. Circular flow of income: a simple model of the process by which income flows around the economy. Leakages: In economics, a leakage is a diversion of funds from some iterative process. For example, in the Keynesian depiction of the circular flow of income and expenditure, leakages are the non-consumption uses of income, including saving, taxes, and imports. Injections. Injections are the introduction of income into the flow, such as additions to investment, government expenditure and exports •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Success Criteria Find out the flows of money between economic agents Analyze the two charts in terms of income flows T-1-Challenge-1(WTE) Label the components of circular flow of income in a closed and open economy in the given graph. Challenge-2(ME) analyze scenarios related to the circular flow of income in both closed and open economies. Challenge-3(EE) How does international trade affect the circular flow of income in an open economy? T-2- Discuss and find out the impact of injections and leakages to the circular flow Challenge-1- (WTE) Label the diagram of circular flow with government sector. Challenge 2-(ME) Evaluate, how does leakages affect the CFY. Challenge-3-.(EE) Analyse the impact of injections to the circular flow. Challenge-4-(G&T) With the help of a diagram explain, when will the macro-economy will be in equilibrium. Reflection of learning Extended task Plenary •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Tuning-in Find out the flows of money between economic agents. •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Task-1-(Concept base) Analyze the two charts in terms of income flows. AFL identify and explain the components of the circular flow of income in both closed and open •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. economies.(activity sheet) Challenge-1(WTE) Label the components of circular flow of income in a closed and open economy in the given graph. Challenge-2(ME) Challenge-3(EE) analyze scenarios related to the circular flow of income in both closed and open economies How does international trade affect the circular flow of income in an open economy? AFL identify and explain the components of the circular flow of income in both closed and open economies.(Worksheet) Self-check An open economy is an economy that engages in international trade. In contrast, a closed economy is one that does not export or import goods and services. Of course, no economy is a totally closed economy but such an economy can be used in a model of how an economy works. In practice, there are leakages out of the circular flow- some income is saved, some is taxed and some is spent on imports. Some expenditure is also additional to the spending that comes from the incomes generated by domestic output. These extra items of spending, known as injections, are investment, government spending and spending by foreigners on a country's exports. Figure 9.15 includes these leakages, also known as withdrawals, in a circular flow of income in an open economy. •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Task-2(Application Based) Discuss and find out the impact of injections and leakages to the circular flow. , Challenge-1- (WTE) Label the diagram of circular flow with government sector. Challenge 2-(ME) Evaluate, how does leakages affect the CFY. Challenge-3-.(EE) Analyse the impact of injections to the circular flow. AFL State any two macro economic impact of injections to the CFY. Challenge-4-(G&T) With the help of a diagram explain, when will the macro-economy will be in equilibrium. Instructions You have 5 minutes to discuss and 2 minutes to share your thoughts. You can discuss in a group of three •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Self-check Injections and leakages Injections are the introduction of income into the flow, such as additions to investment, government expenditure and exports. injections increase the flow of income in an economy. An injection adds to the national income and consumers and businesses have more money to purchase and manufacture goods and services. If injections are greater than withdrawals, Y will increase. As Y increases, S, T & M will also increase, as households will save more, pay more tax and buy more goods from abroad. Y will continue to rise until injections and withdrawals are equal. If withdrawals are greater than injections, Y will fall. A leakage means withdrawal of a part of income (money) from circular flow of income. For instance, savings and taxes by households and firms as well as import payments are forms of leakage. Injections are addition of money to the circular flow of income, e.g., investments, government expenditure, export payments. leakage or withdrawal is that part of the income of an economy that does not pass through the circular flow of income, resulting in the unavailability of that money for spending on the goods and services produced recently. Thus, it can be said that leakages reduce the flow of income in an economy. Reflection of learning 1. What will be the effect of leakages and injections in the circular flow of income? 2. What will happen if leakages are equal to injections in a circular flow 3. What will be the impact when injections are greater than leakages? . •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Extended task Past paper question. 1. How can we use macro economic policies when leakages are more than injections? Plenary EXIT TICKET •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income. Additional Activity(EE+) if required Analyze the graph and find the forms of injections and leakages •LO. Discuss the Circular flow of Income in a closed and open economy. •Analyze the impact of injections and leakages to the circular flow of income.
