26 The circular flow of income Flashcards
Income
Money that comes into a households
- Main source of income is wages however each factor of production produces different type of income
Circular flow of income
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
Methods of measuring national income, output and expenditure
- 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
Injections
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
Leakages
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