OUTFLOWS & INFLOWS of the

CIRCULAR FLOW
In our economic system, you may
have experienced the decrease &
increase of money supply in the
economy. There are times when
there are times when there is
plenty of money & sometimes,
almost scarce or few.

These kinds of phenomena are

brought about by the changes in
the outflows and inflows in the
economic system.
In the circular flow, the
household receives income from
the firm. From our previous
discussion, it is assumed that the
incomes received by the
households are all spent for

consumption & goods & services

are all sold out. However, not all
incomes are spent. There are
factors that affect the individual
consumer not to utilize his
income.

These factors are:

SAVINGS - The individual consumer
tends to save for future use.
Usually, he deposits his savings in
the bank. Savings is an income
not spent for consumption.

TAXES - it is a compulsory
contribution to support the govt.
Taxpayer, as good citizens, has the
responsibility to contribute a fair
share to the cost of the govt.
People pay their taxes in
accordance with the benefits they
receive from the govt. It is like
buying goods & services in the
market.

IMPORTS
THESE are goods bought by the
Philippines from other other
countries. The country resorts to
importation if our agriculture &
industries cannot supply the
necessary goods that the
consumers need. Obviously, no
country can be completely selfsufficient.

As gleaned upon, portions of the

consumers income are used for
savings, to pay taxes, & buy imported
items. Savings, taxes, & imports of
goods & services are outflows in the
economy. An outflow is a flow of
income that goes out of the circular
flow.

INVESTMENT
It constitutes a spending decision that
results in the use of output &
productive resources. Savings
deposit made by depositors is
invested into business by the bank.
This may be in the form of business or
lending the money to people who will
likewise invest the money.

GOVERNMENT EXPENDITURES

The govt collects taxes to defray

expenses or its infrastracture
projects & other economic devt
projects.

EXPORTS

Products purchased by the

country from other countries are
reciprocated by foreign countries
by buying our products. When the
Phils. export goods to other
countries, payments are made &
this goes back into the circular
flow.

investments, governments
expenditures, & exports are inflows
in our economy.
An inflow is a flow of income that
brings back funds into the circular
flow

When outflow equal the

inflows, the equilibrium level of
economic flow is maintained.
However, too much outflows of
money in our economy will result
to deflation.

In like manner, too much inflows of

money into our economy usually
results to inflation, a decline in
the value of money, with an
upward movement of the price
level. When the amount of money
in circulation increases, people
have more money to spend. There
will be an increase in demand.

Therefore, consumers compete for

available goods. They pay more
pesos for the goods they want &
consequently, an increase in price.

Inflation then can be described as

too much pesos going after a small
number of goods.

In our econ system, outflows &

inflows will never be equal. There
will always be imbalance between
the two, & the imbalance can be
checked by the economic policies
of the government.
The reasons for these imbalances
are --- the consumers behavior
and income.