2.4.1 National Income Flashcards
What is the circular flow
a model that shows the operation of the economy
Shows the flow of income and good/services between different agents of the economy
Where do households lie in the circular flow of income
Households receive factor income e.g wages/salaries
They receive welfare benefits
They buy good/services supplied by firms = consumer spending
They pay taxes
Where do businesses lie in the circular flow
Business hire factor production when making products = investment in stock + capital goods
They pay corporation tax
They also can export in the global economy
Where does the Government lie in the circular flow
Government collect taxes to fund public services
state welfare is government spending
Where does the rest of the world lie in the circular flow
Imports from other countries = leakage
Exports into the UK = injection
What is income
Name examples
is the flow of money going into factors of production
e.g: wages + salaries
rental income
interest from saving
profits flowing to shareholders
What is nominal income
Money income measured at current prices
What is real income
Income adjusted for inflation
measures the true purchasing power of someone’s income
What could the possible economic impacts of falling real income be
- Lowe income means lower consumption
- Possible consumer confidence (animal spirit)
- Lower Aggregate demand
- Lower revenue + profits for businesses
- Increasing unemployment
- Less tax revenue for government
- reduced ability to pay off debt
What is wealth
examples
Value of a stock of assets owned by someone
Savings in banks
ownership of property
shares/stocks in a business
Wealth in occupational pension schemes
What is the Gini Co-efficient
A measure of income inequality
It condenses income distribution for a country into a single number between 0 - 1
The higher the number the greater the income equality
