2.1 The Circular Flow Of Income Flashcards
1
Q
What is national income?
A
- total value of goods and services a country produces
- output in one year
- can be measured by GDP, GNP and GNI
2
Q
What is real GDP?
A
- the value of GDP adjusted for inflation
3
Q
What is nominal GDP?
A
- the value of GDP not adjusted for inflation
4
Q
What is gross national product? (GNP)
A
- the market value of all products produced in an annum by the labour and property supplied by the citizens of one country
- includes GDP plus income earned from overseas assets minus income earned by overseas residents
5
Q
What is gross national income? (GNI)
A
- the sum of value added by all producers who reside in a nation, plus product taxes, plus receipts of primary income from abroad
- (this is the compensation of employees and property income)
6
Q
Describe the circular flow of income
A
- households supply firms with factors of production and receive wages/dividends
- firms supply households with goods/services and receive money thorough consumption
7
Q
Give 3 examples of income injections
A
- government spending
- investment
- exports
8
Q
Give 3 examples of income withdrawals
A
- savings
- imports
- taxes
9
Q
What is full employment income?
A
- the total output of an economy when unemployment is minimised or is at the government target
- accounts for frictional unemployment
10
Q
What is income equal to in the circular flow?
A
- income = output = expenditure
11
Q
What is an injection?
A
- when money enters the economy
12
Q
What is a withdrawal?
A
- when money leaves the economy
13
Q
What is economic equilibrium?
A
- rate of withdrawals = rate of injections
14
Q
How does the savings rate affect investment?
A
- low SR, low investment
- high SR, high investment
15
Q
How do net injections affect the economy?
A
- expansion of national output
