Context, Purpose and Scope of the Manual

It may be helpful to briefly recall the role that capital plays in a stylised system of national accounts. This can easily be done with a circular flow diagram, as shown in the figure below. Flows of quantities of goods and services are matched by monetary flows. In the simplest case with only consumers and producers, the basic exchange is between labour (hours worked) and consumer products. These are exchanged in the markets for labour and for consumer products and give rise to revenues and costs for producers, and expenditure and labour income for consumers. The flow of labour into the producer’s sector and the flow of consumption goods out of it signal a production process whose analysis is central to many economic questions.