Answer to Question #215102 in Microeconomics for saikat

Question

If there is Savings in this Circular model, then what would eventually happen to income and revenue?

Answer 1

simple circular flow is altered to permit for injections and withdrawals. Households can opt to saving rather than spending portion of their income, reducing cyclical flow of money. Since saving tends to be a drain from circular flow, marginal decisions to save restrict the flow of revenue in the economy. Firms, on the other hand, buy capital items.