2.4 National Income Flashcards
Draw the circular flow of income
FoP —- Goods/services
What does the circular flow model show
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
What is the diffreence between wealth and income
Income is the regular flow of earnings
Wealth is the stock of assets, accumulated over time
What are the impacts of injections into the circular flow
injections are adding money into the circular flow and increase its size.
^ govt spending (G)
^ investment (I)
^ exports (X)
What are the impacts of withdrawals into the circular flow
Withdrawals are leakages and remove money from the circular flow, making the economy smaller
^ savings by households
^ taxation by govt
^ imports (M)
What is the multiplier ratio
ratio of change in real Y to the the injection that created the change
What is the multiplier process
The idea that one individual’s spending is another individual’s income
What are the effects of the multiplier on the economy