Circular Flow Flashcards
What role do Households play in the circular flow
Primary Participants
Own factors of production
Buy goods and services
What role do Firms play in the circular flow
Buy / Demand Factors of production
Produce and sell goods and services
Import and Export
What role does the Foreign Sector play in the circular flow
Buy factors of production from households
Buy and sell goods and services
What is the Factor Market
Where Factors of production are traded
Includes labour, property and financial markets
What is the Goods Market
Market for goods and services
Comprises of Durable goods, Semi Durable goods, non-durable goods
What is the Financial Market
Not directly involved in the production of goods but links households, business sector and other participants
What is the use of the money market
Used by participants as a means of borrowing and lending in the short term
What is the purpose of the capital market
Financial market where individuals trade financial securities in the long term
What is the purpose of the Foreign Exchange market
Where businesses buy and sell foreign currency to pay for imported goods and services
What is the Real / Physical Flow
Flow of goods and services and factors of production
What is the money flow
Continuous flow of money income and spending in the economy
What are Injections
When money enters the circular flow between the participants of an economy
What are the 3 types of injections
Exports
Investment Income
Government Spending
What are Leakages
The outflow of money from an economy
What are the 3 types of leakages
Savings
Taxes
Imports expenditure
