Answer to Question #305414 in Macroeconomics for Zimkhitha

Question

In the circular flow of income and spending financial institutions

Answer 1

In the circular flow of income, it is assumed that the economy is closed and that any spending by the financial institutions would not have any effect in terms of either adding money into the system or withdrawing money from the system. Therefore, spending by the financial institutions will have no effect on the circular flow of income.