Asked by KevinEconomics 📈

How does economic growth link with the circular flow of income?

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Mohiman Muammar

Its easy when Im your teacher

When the economy grows, output increases which means there’s and increase in aggregate demand which is made up of consumption, gov spending, net exports and investment. When for e.g consumption increases it means more money is going into goods and services therefore firms need to hire more labour to keep up with the demand thus more people are employed and therefore have an income. Moreover people may work overtime and therefore have an increase in income which again is used to pay for goods and services further fuelling the multiplier effect.

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