Booklet One Flashcards
what are the three methods of calculating the level of economic activity in the economy?
The output method - calculated by adding up the goods and services produced
The expenditure method - add together all the money spent by households in the economy
The income method - The amount firms pay households for the factors of production
what can we assume in a closed economy?
output ≡ expenditure ≡ income
what is the circular flow of income model?
illustrates how money and resources move through the economy the model assumes a closed economy, meaning there is no international trade.
What is income?
income is a flow variable - it is generated or received over time such as a salary
what is wealth?
wealth is a stock variable - the value of assets someone has at a given time
what factors of incomes are associated with the factors of production?
the factor income for capital is interest
the factor income for enterprise is profit
the factor income for land is rent
the factor income for labour is wages
Draw the circular flow of income diagram
see camera roll
what are leakages/withdrawal?
Money that leaves the circular flow of income
3 examples of leakages/withdrawals
.purchases of imports - goods brought from abroad
.taxation
.savings - income not spent
what are injections?
Money that enters the circular flow of income from someone other than firms or households
3 examples of injections
.sales of export - goods sold abroad
.government spending
.investment - in this sense spending previous spending
What is GDP?
the total value of goods and services produced in a country within a year
what are nominal values?
nominal values are the actual numerical values that are measured using the current price
what are real values?
Real values are taken at constant prices, they are adjusted for inflation
Formula for Index Number
Index Number = (Current Year Value/Base Year Value) × 100
