Macro Economy Systems
In the following paper, I will be discussing the open and closed system of the two circular diagram presented in my textbook. I will explain what a closed system and open system is and provide examples for the both. Next, I will discuss the inner and outer flows of both systems. Then I will define the leakage and injections in an open system. Lastly, I will provide personal examples of the leakage and injection and describe and explain them both. Following the end of this paper, the reader should have a better understanding of and open and closed flows in the macro-economy.
Macro Economy Systems
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There are also leaks from domestic businesses to foreign companies. For instance, if an American fashion designer were launching a fashion line in Europe, they would be creating a leak in the domestic system. Having an open economy allows money to be leaked into the system. This money can come from the government and firms of foreign countries that have been traded with. Also accounts that families have reinvested money in the system like money saved with the stock market. By doing so, this increases the value of money and allows the system to continue to flow.
Inner and Outer flows of a Closed System
The inner and outer flows of a closed system is a flow from a business to home, goods and services from a business to a household and a household that works at the business for land labor and capital and back again. This creates a constant flow in a closed system. One example of the inner and outer flows of a closed system is an employee that works for Chic-fi-la. If the employee works there and also eats there, this is creating a flow of services.
Inner and Outer flows of an Open System
The inner flow in an open system is when people purchase goods or service within their country. The business then takes that money and purchases the land to build more businesses. This allows them to be able to provide more goods and services for the consumers. Then the government collects taxes from both the factories and the consumer which is then recycled back into the economy. And so the flow continues. The outer flow of an open system is when businesses begin to trade with other countries, foreign nations, and demand and supply goods and services in the product market, as well as demand and supply resources in the resource market .
Leakages in an Open System
Leakages are taxes, savings, and import expenditures not spent in the economy....