26 The circular flow of income Flashcards

1
Q

Income

A

Money that comes into a households
- Main source of income is wages however each factor of production produces different type of income

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2
Q

Circular flow of income

A

Way in which income,money, services and goods flow in an economy
- households use incomes to buy goods ans servueds
- money flows back to firms

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3
Q

Methods of measuring national income, output and expenditure

A
  • national income - all the incomes that flow to households over a period of time
  • national output - value of all the output produced in an economy over a period of time
  • national expenditure - all the spending by households, firms and government over a period of time
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4
Q

Injections

A

Routes from money to enter the circular flow of income
- investment - when firms purchase goods and services to be used in future production
- government expenditure - when the government purchases goods and services
- exports - when firms sell goods and services abroad - the money leaves the foreign economy and is injected into the economy in which firm operates

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5
Q

Leakages

A

Routes for money to leave the circular flow of income
- savings - when households choose to save their money instead of spending it
- taxation - when the government takes money out of one circular flow
- imports - households and firms buy from foreign firms

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