2.1 Introductory Lesson - Circular Flow 1 Flashcards
What is the circular flow model?
The circular flow model is a representation of the economic system that shows the connections between different sectors such as households, businesses, government, and external sector. It revolves around flows of goods/services, factors of production, and money between these sectors.
What are the four key parts of the circular flow model?
The four key parts of the circular flow model are households, businesses, government, and external sector.
What do households receive income through in the circular flow model?
Households receive income through wages and salaries from their jobs and investments in the circular flow model.
What do households spend their income on in the circular flow model?
Households spend their income on goods and services supplied by firms (consumer spending) in the circular flow model.
What do businesses hire in the circular flow model?
Businesses hire land, labor, and capital inputs when making products for which they pay wages and rent in the circular flow model.
What do firms receive payment from in the circular flow model?
Firms receive payment from consumers (creating revenues and profits) in the circular flow model.
What does the government collect in the circular flow model?
The government collects taxes (T) in the circular flow model to fund spending on public services such as education, healthcare, and defense, and welfare assistance.
What is the purpose of state spending in the circular flow model?
State spending (G) in the circular flow model is used to fund public services such as education, healthcare, and defense, and welfare assistance.
What happens in the external sector of the circular flow model?
The UK buys imports from other countries (M) and overseas businesses and consumers buy UK products (exports X) in the external sector of the circular flow model.
