3.1 Economic Activity Flashcards
What is the circular flow of income model?
It represents the relationship between firms and households in an economy.
What happens if households stop spending?
Firms will stop as well.
What occurs when households increase spending?
Firms expand, produce more goods and services, and pay higher incomes.
What are the injections into the circular flow of income?
- Government spending
- Financial industry lending
- Foreign demand for goods and services
What are leakages from the economy?
- Delayed investments by firms
- Increased taxes by the government
- Domestic consumers buying foreign products
What does GDP stand for?
Gross Domestic Product
What does GDP measure?
The value of everything produced in a country in a specific time period.
What is the difference between GDP and GNP?
GNP includes net income earned from abroad.
What does GNP stand for?
Gross National Product
What does GNI stand for?
Gross National Income
What is a major issue with GDP when considering multinational corporations?
GDP may underrepresent income earned from foreign investments.
What are some proposed solutions for climate change?
- Carbon taxes
- Ending fossil fuel subsidies
- Encouraging investment into alternatives
- Carbon trading schemes
What is one advantage of GDP?
Allows comparison across countries.
What is a disadvantage of GDP?
Overestimates the quality of life.
How does GDP inform policy makers?
It measures economic growth through percentage changes in economic output.
What does GDP per capita represent?
The average income earned by a citizen of the country.
What is a limitation of GDP regarding income distribution?
It does not account for disparity in income distribution.
What inaccuracies can affect GDP calculations?
Difficulties in data gathering and potential biases in reporting.
What is a criticism of GDP regarding product quality?
It does not account for improvements in the quality of output.
Fill in the blank: GDP is a measure of _______.
economic activity
True or False: GDP accounts for environmental degradation.
True
What are the two exchanges that exist between firms and households?
- Consumption expenditure in exchange for goods and services
- Factor payments in exchange for the factors of production
What are the factors of production involved in factor payments?
- Land
- Labour
- Capital
- Entrepreneurship