Circular Flow of Macro Economy

Circular Flow of Macro Economy

• What is Produced = What is Spend = What is Earned (Income = GDP)
• Therefore, National Savings = Investment (S = I)
• Investment is required to grow productivity
• Productivity + Labor Force Growth = Economic Growth
• Therefore, Greater Savings = Greater Investment
• Other Notes On this Model
• Government Deficits = Negative Savings = Less Investment 

Negative Feedback Loop of Increasing Government Deficits

• Rising Deficits Reduces Savings Rates
• Lower Savings Rate = Less Investment
• If Private Savings Rises to Counteract Government Deficit, then Consumer Spending & Economic Growth
• Only Way out is to reduce government deficits