Chapter 2 Flashcards
What does a leakage represent in the economic cycle?
The withdrawal of money from the economic cycle (local economy).
What are the components of leakages in an open economy?
Taxes (T), expenditure on imports (M), and savings (S)
Define injections in the economic cycle.
The injection of money into the economic cycle, increasing income and domestic purchases.
What are the components of injections in an open economy?
Government spending (G), revenue from exports (X), and investment spending (I).
What is a product market?
Markets for consumer goods where buying and selling of goods that are produced occur.
What happens in the money market?
Short-term loans and funds are saved and borrowed by consumers and business enterprises.
What is traded in the factor market?
Services for factors of production such as natural resources, labor, capital, and entrepreneurship.
What is the importance of the foreign exchange market?
It facilitates transactions where businesses buy foreign currency to pay for imported goods and services.
What are final goods and services?
Manufactured goods and services that satisfy human wants and needs and are ready to be consumed.
What are capital markets used for?
Borrowing and saving long-term funds by consumers and business enterprises.
What are capital goods and services?
Goods and services that are not directly consumed but help manufacture other goods and provide other services.
What is the ultimate aim of any good economy?
To satisfy its population’s wants and needs.
What is final consumption expenditure by households?
The total expenditure by households in a given year to satisfy their wants and needs.
What are the three divisions of government expenditure?
Functional division, administrative division, and financial division.
What is gross fixed capital formation (I)?
An increase in the country’s capital stock, contributing to the economy’s ability to manufacture consumer goods and services.
