2.4 National Income Flashcards
1
Q
Explain the two-sector economy circular flow of income
A
- Households own all the wealth and resources so provide the firms with
land, labour and capital in return for rent, wages, interest and profits. - They use this money to buy goods and services produced by the firms.
- Money flows in one direction and goods, services and factors of production flow in another.
2
Q
What are the three ways of measuring the level of economic activity in the two-sector economy?
A
- The national output
- The value of the flow of goods and services from firms to households
- The national expenditure
3
Q
Why is the two-sector economy circular flow of income too simple?
A
- The government needs to be added. They take money out of the economy through taxation and add money by spending. If the government spends more than it takes away, it can increase the flow of income
- Financial services need to be added who can inject money into the system through investment and take money away when consumers or producers save
- Foreign markets are added as foreigners buy British goods, known as exports which add money to the flow but British people want to buy foreign goods known as which imports take money away from the flow
4
Q
What is wealth?
A
- A stock of assets
- e.g. houses, possessions
5
Q
What is income?
A
A flow
6
Q
What are injections?
A
- Monetary additions to the economy
7
Q
What are the three injections?
A
- Government Spending
- Investment
- Exports
8
Q
What are withdrawals/leakages?
A
- Where money is removed from the economy
9
Q
What are the three injections/withdrawals?
A
- Taxes
- Savings
- Imports
10
Q
When the sum of injections are greater than the sum of leakages/withdrawals…..
A
the economy will be growing
11
Q
When the injections are smaller than withdrawals..
A
the economy will be shrinking
12
Q
Where is the equilibrium position of national output?
A
Where the AD and AS curves intersect
13
Q
NEED TO ADD MORE BUT BORINGH
A
