2.4.1 + 2.4.2 National income, Injections and Withdrawals Flashcards
what is income?
measures the flow of money a person or economy recieves each year
payslip/rent
what is wealth?
the sum/stock of all your assets added up
assets are items that you own
what are some examples of income?
- salary
- intrest on savings
- dividends
- unemployment benefits
- rental income
things that you recive on a daily basis
what are some examples of using wealth to generate income?
- dividend payments from shares
- intrest payments on savings
- rental income from mahcinary
draw the simple circlular flow model
(What is an assumption of this model)
- assumed that all factors of production are owned by households
- factors of income: rent & wages
why does national output=national expenditure=national income?
- the spending from households come from the income that they earn
- and expendiyure = ouput as households spend on the output of goods and services
what is the circular flow equation?
national income= national expenditure= national output
what is the defeinition of factor incomes in the circular flow of income?
money paid by firms to households in return for factors of production
how could national income be measured?
- measuring national output, becuase national output= national income
- using real GDP
what are the withdrawals/leakages in the circular flow ?
things that stop the circulat flow of income (households spending all their income on firms)
* savings
* imports
* taxes
SIT
what is a leakage?
when money leaks out of the circular flow
what are savings within the circulr flow of income?
disposable income that is not spent by households (leakage)
what are imports in the circulat flow of income?
spending on foreign goods and services
what are taxes within the circular flow of income?
money paid to the goverment by consumers, firms, workers (leakages)
what is an injection?
when money is injected into the circular flow
what are the types of injections in the circular flow of income?
- goverment spending
- investment
- export
GIX
What is goverment spending within the circulr flow of income?
when the goverment injects money into the economy by spending on schools, teachers, hospitals, doctors….
what are exports iwthin the icrcular flow of income?
when firms export goods abroad, we recive money to money is injected into the economy
what is investment within the circular flow of income?
banks use our savings to invest into our firms, injecting money into the circular flow
draw the more complex circular flow of income model.
how do changes in injections and withdrawals affect the economy?
- leakages < injections, money coming into economy, GDP increasing
- leakages > injections money leaving the economy, GDP decreasing
- leakages= injections, same amount of money in economy, GDP stays the same
what is another formula for real GDP?
GIX- SIT
wealth
a stock of assets
define injections
variables in an economy that add to the circular flow of income. They include: investment(I), goverment spending (G) and exports (X)
define withdrawals
variables in an economy that remove money flows from the circular flow of income. Saving (S), Imports(I), taxes(T)
define national income
the total spending on goods and services in an economy
define ‘circular flow of income’
an economic model that shows how money flows around the economy between firms and households.
* consumption (spending) and income flows as financial flows for factors of production and goods and services
