3.1 overall economic activity Flashcards
circular flow of income
The circular flow of income shows the flow of income in the economy in a given period of time, where the total output produced = total expenditures = total incomes earned
injections
Expenditures on goods and services diverted back into the circular flow
Government expenditure (G)
Government spending on goods and services
Investment (I)
Firm purchase of capital goods
Exports (X)
Foreign consumer demand for domestically produced goods and services
leakage
Income diverted out of the circular flow and not spent on goods and services
Taxes (T)
The portion of income paid by households to the government for income taxes and indirect taxes
Savings (S)
The portion of household income that is saved
Imports (M)
Domestic consumer demand for foreign produced goods and services
Gross National Product (GNP)
Total value of all final goods and services produced within the geographical boundaries of a country in a given time
Gross National Income (GNI)
Total income received by residents of the country from factors of production owned by these residents in a given time, regardless of the location of these factors of production
Real values
Real values of GDP and GNI are adjusted for inflation and show the change in real economic output excluding the effects of rising prices
nominal values
Not adjusted for inflation and will reflect changes in the value of economic output that is due to a change in actual output and general price levels
per capita
Per head so GDP per capita means GDP/total population and GNI per capita means GNI/total population
standards of living
Refers to the well-being of the average household in the economy; consists of material and non-material aspects
