1.1 Circular Flow Of Income Flashcards
What is the circular flow of income
What is a leakage from the circular flow of income
Saving income removes it from the circular flow of income. This is a leakage of income. Taxes are also a withdrawal of income
What is an injection into the circular flow of income
Government spending on public and merit goods, and welfare payments, are injections into the economy
How does the economy reach a state of equilibrium through the circular flow of income
When the rate of withdrawals = the rate of injections
What happens if there are net injections into the economy
There will be an expansion of national output
What happens if there are net leakages from the economy
There will be a contraction of production, so output decreases
What did the link between national income, output and expenditure
National income = National output = National expenditure
How can you calculate National income, output and expenditure
Value added
Sum of income
Expenditure
What is meant by value added when speaking about measuring National income, expenditure and output
The value gained through the production of goods
What is meant by sum of incomes when speaking about measuring National income, expenditure and output
Sum of incomes earnt through the production of goods and services
What is meant by expenditure when speaking about measuring National income, expenditure and output
Total value of consumption of final goods and services
What is meant by the term physical flow
The flow of a good or service such as electricity
What is meant by the term monetary flow
The flow of money, which could be in the form of taxes or from consumption
