First, let’s understand what an economy is:
An economy is “a system for the production and consumption of goods or services to fulfill the needs of people”.
I know that, because my economics teacher, Mr. Kay, made us write out that definition out 100 times in like 1997. True story.
In an economy, the supply (production) and demand (consumption) are traded – often for currency, like a dollar.
Economies can be large – like the global economy – or they can also refer to smaller geographic areas – like the Saskatoon Region.
So, within the Saskatoon Region, we have our economy – of sellers, and buyers, and the dollars used to make those purchases. Or “e-bucks” as my 9 year old once called them.
How money moves around the economy can be summarized by the “Circular Flow of Money Model” – still with me? Good, high five (virtually of course).
In this model, dollars flows from producers to workers as wages – and flows back to producers as payment for products.
In short, an economy is an endless circular flow of money.
That is the basic form of the model, but actually the flow of money is more complicated – because money can leave, and enter, this circular flow. Warning – we are now entering Level 2 economics. Welcome my friends.
These are called injections and leakages from the money supply.
And these are critically important to an economy, because it’s the amount of money entering or leaving the economy that ultimately changes it.
And it’s why the flow of new money into our economy – grows it, just as money leaving our economy can, um, reduce it. In the end, you hope there are more injections than leakages.
Let’s look at a local example. Or as Mr. Kay would say – “consider this…”.:
If Paul was considering spending $100 at a local restaurant or at a local store – in theory that purchase doesn’t increase or decrease the economy – because either way the $100 stays local – it just gets exchanged at a difference location. It stays within our circular flow of money.
However, if Paul was considering spending his $100 at a local store versus buying $100 of branded material from his favourite band in Chicago, his money will either stay local or be leaked – in this case to the USA.
This model also explains why visitors to our economy are so important – because the money they spend when they visit is an absolute addition to our economy – i.e. money that wasn’t previously in our circular flow.
This model also explains why spending dollars locally keeps are economy moving (around and around) – too many leakages could slow it down. Boooo, we don’t want that – right Keith and Jason !?
Now, that being said we also have to remember that supply and demand is ultimately down to consumer choice – buyers deciding what to buy and where to buy it from – and sometimes they may wish to buy “globally” – this keeps other economies moving, who in turn, may want to buy (or import) goods made in Saskatchewan. A healthy local economy and a healthy global economy is good for everyone.
But the more dollars we can keep moving around our local economy, and adding injections from visitors/investors/tourists/Albertans etc., whilst reducing leakages can help keep our economy strong – and that’s good for everyone.
So the moral of the story folks is, of course, shop local when you can, it keeps our economy moving! And that’s good for everyone.
Alex Fallon, SREDA