The determination of the
total production of goods and services is an important issue in macroeconomics.
goods and services in order to consume those goods and services and thereby
satisfy some of our needs and wants.
The amount goods and services
we can consume, depends on how much we can spend on these goods and
services. The amount we can spend in return depends on our income,
which is derived from taking part in the process of production. A continuous circular flow between production, income and spending
takes place in the economy.
Three important flows can therefore be distinguished in the
economy. They are production,
By taking part in the process
of production through selling factors of production an income is earned in the
form of wages and salaries, rent, interest and profits. This
income is then spent to buy the goods and services
that were produced.