The above image is from my macroeconomics textbook.
I’m struggling to understand the “financial markets” corner. If financial markets refers to banking and perhaps the stock market, is it true that its only input is savings from households? Don’t firms also participate?
And if investment refers strictly to capital goods and additions to inventory, then shouldn’t the
I arrow originate from firms, who make the investments?
If everything that a firm makes becomes income, then where does it get money for investment? It seems from the diagram that all of the firm’s profit goes straight to the resource market—paying employees, etc.
(On a more basic level, how does wealth ever actually increase/the economy ever grow if everything is a cycle? I understand that a central bank could do things in the financial market to increase money supply, but assuming such a system as a gold standard, is it even possible for the economy to grow?)
I appreciate your answers.