Sunday, 22 March 2015

Flow of Money Diagram

Here's a diagram showing the flow of money, and the flow of goods and services, in the typical interaction between a borrower and a bank.

Note how each actor (borrower, banker, bank and the rest of the economy) has a balanced flow of money (money in = money out). However, in this case – where the borrower repays the loan in full – there is a net transfer of £i of goods and services from the borrower to the banker.