2.4 - National income Flashcards
What is income?
A stream/flow of money, which a person receives in the form of wages/salary, rent, interest, profit and dividends
What is wealth?
The total market value of all the assets possessed, stored or saved for future use.
What is net worth?
The value of assets minus liabilities.
What are some examples of wealth?
- savings held in bank deposit schemes
- ownership of shares issued by listed companies and equity stakes in private businesses
- the ownership of property
- wealth held in bonds
- wealth held in occupational pension schemes and life assurance schemes
What is the equation for aggregate demand?
AD = C + I + G + (X-M)
What are the 3 injections in the circular flow of income?
I - investment
g - government spending
X - exports
What are the 3 withdrawals in the circular flow of income?
S - savings
T - taxes
M - imports
Where does investment flow?
Investment flows from firms into banks. This is the money they spend on plant and equipment or stocks of inputs.
Where does government spending flow?
Government spending flows from the government to firms and households
Where do exports flow?
Exports flow from the rest of the world to firms
Where do savings flow?
Savings flow from households to banks. This is income that they choose not to spend.
Where do taxes flow?
Taxes flow from firms and households to the government.
Where do imports flow?
Imports flow from households to the rest of the world
Where does income flow?
Income flows from firms to households eg. wages/salaries, dividends, interest and rent.
Where does consumer expenditure flow?
Consumer expenditure flows from households to firms
What are some reasons for saving income?
- high interest rate = high reward
- saving for the future
- emergency fund
- a rainy day
- to acquire wealth
- deposit for house or car
What are some reasons for borrowing?
- low interest rate = low cost
- to pay for house/car, to finance consumption/wants
- mortgages
- to start a business
When is equilibrium reached in the circular flow?
Injections = leakages
I + G +X = S + T + M
What is the circular flow of income?
Shows the concept of money flows, which are changed when there is an injection/withdrawal in the economy.
How is the circular flow of income influenced by injections and withdrawals?
When injections are greater than withdrawals, money in the circular flow increases, there is economic growth. When withdrawals are greater than injections, the amount of money in the circular flow decreases, representing a fall in real GDP. When in equilibrium, injections are equal to withdrawals, national income remains at the same level.
Where is the equilibrium position of national output?
Where AD and AS curve intersect. This will change if there are shift in AD or AS.
