Abstract

In the following paragraphs there will be explanation of the way that the flow diagram charts works. This is for the two forms of an open system and the closed system in macro-economics. The definition and how the flow chart help keep the flow of cash in the nation and international.

There are macro-economic models in the world today. Two forms of systems to keep track of the flow of money. The first is a closed system, which basically trades the domestic’s cash flow, plus the mechanism which is used by the nation. The second method is called open system; the open system is used mostly to trade all forms of cash flow also international purchases and sales.

The closed system form is for any economy it focuses on keeping cash flow in one nation. The flow goes from corporation that hires to raw resources to produce goods and services. The goods and services, then sold back to nations with a steady cash flow maintain in the nation. However, the closed system is not perfect, but known for an ideal method of economics.
In some cases, a closed system shows a number of leakages that occur from money traveling out of the economy, but not coming back into the right hands, businesses or individuals. For instance, the government taxes are spent for protection against crime and fires and not given back to the community, which then is lost in the system. Now not only leaks occur, business and Americans also buy products from nations that can make goods and services for a cheaper price. In 2010, 500 billion dollars was lost in the economy because having more imports than exports. This will occur when spending in other nations and not selling enough to pick up the slack. In an open system that lacks foreign transactions, an open system provides just that. In an open system are composed of closed system and includes profits and losses in foreign activities. In the open system, taxes are included to show government purchases and inject money back in the economy. Monies that are lost due to purchase of foreign goods and services also included in the open system.
The America economy runs on an open system that sees many leakages in the government and foreign companies. Government leaks occur when taxes imposed on individuals and companies lost in income. The foreign leak happens when individuals or companies decides to buy from foreign products at a cheaper rate. Such transactions spent on products are leaks overseas and sometimes never come back. Another form of leakage is when Americans companies use outsources their labor or capitol to overseas locations. Even though the company may save, they can make additional profits, the funds which are leaked may never be seen again.
A most currently debated business who outsources their labor, the production of production of products is Apple. They are currently undergoing rigorous investigations for poor working conditions provided in overseas locations. Because of the working conditions in foreign areas the safety regulations and minimum wage were miniscule. The Americans may not ever get these jobs back because the Chinese will always underbid (Eskow, 2012).
Now what happens to all the money that leaks out of the economy go? Mostly to the other nations economies. Which some of the monies do make it back to the American economy the same as it left? When an injection takes place ths when a foreign or individual purchases American goods or services. If a forging company hires an American worker the wages are injected back into the economy. Same with the government if purchases in America or provide services like welfare, the money is injected back in the economy. The leakages and injections should match in an ideal economy. As of now the leakages outweigh the injections both foreign, and government interactions.
A good example of injection is when a company provides American jobs; make a profit from sales to foreign nations. For instance a company in the “green” and call themselves the Wind Sail Reception, Inc. is located in Nevada that is producing turbines to convert wind to energy since December of 2002. They sell to American energy facilities and to European facilities. Income from European market is considered a cash injection to the American economy.
The cash injection wants to be higher than cash leakage So that the more money coming in the economy will stay there rather than leaving the economy. The American economy is suffering because of losses of cheaper products and labor of overseas nations from China. In Ha-Joon Chang’s book The Myth of Free Trade and the Secret History of Capitalism, he states “It is a law of competition that people who can do difficult things, which others cannot, will earn more profit.
Definitions
A Closed System- Economic model is a model that counts only domestic exchanges, but not foreign agents.
Open System- economic model that counts the goods and services exchanged domestically and between nations.
Leakage- taxes, savings, and import expenditures not spent in the economy.
References
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