2.4 National Income Flashcards

1
Q

Draw the circular flow of income

A

FoP —- Goods/services

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2
Q

What does the circular flow model show

A

The money flows between households and firms.

Households supply their FoP to firms and receive income as a reward.
Firms purchase FoP from households to produce goods/services, they sell these and receive revenue

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3
Q

What is the diffreence between wealth and income

A

Income is the regular flow of earnings
Wealth is the stock of assets, accumulated over time

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4
Q

What are the impacts of injections into the circular flow

A

injections are adding money into the circular flow and increase its size.

^ govt spending (G)
^ investment (I)
^ exports (X)

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5
Q

What are the impacts of withdrawals into the circular flow

A

Withdrawals are leakages and remove money from the circular flow, making the economy smaller

^ savings by households
^ taxation by govt
^ imports (M)

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6
Q

What is the multiplier ratio

A

ratio of change in real Y to the the injection that created the change

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7
Q

What is the multiplier process

A

The idea that one individual’s spending is another individual’s income

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8
Q

What are the effects of the multiplier on the economy

A
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9
Q
A
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10
Q
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