4.2 Introduction to the circular flow of income Flashcards
Define the term “Open economy”
An economy that is involved in trade with other economies.
Define the term “Closed economy”
An economy that does not trade with other economies.
Define the term “Injections”
Additions to the circular flow of income.
List the 3 injections.
- (I) Investments
- (G) Government spending
- (X) Exports
Define the term “Leakages”
Withdrawals from the circular flow of income.
List the 3 leakages.
- (S) Savings
- (T) Taxation
- (M) Imports
What does it indicate when :
injections ( I + G + X ) > Leakages ( S + T + M )
More money will be entering the economy leading to economic growth rising
What does it indicate when :
injections ( I + G + X ) < Leakages ( S + T + M )
More money will be leaving the economy economic growth falling
What does it indicate when :
injections ( I + G + X ) = Leakages ( S + T + M )
Macroeconomic equilibrium
How can we calculate macroeconomic equilibrium?
S + T + M = I + G + X
