Circular Flow Flashcards
What are the 4 participants in the circular flow
Households / Consumers
Businesses / Firms
State / Government
Foreign Sector
What are the roles of the financial sector (5)
Consists of banks, insurance companies and pension funds
Acts as a link between households and firms who have surplus money and supply others who require funds
Households and firms can save money
Businesses can borrow money from the financial institutions
The spending on capital equipment by firms is regarded as investment
What is the real flow
Goods and services and factors of production
What is the money flow
The earning of money and payments that are made
What is a leakage
The withdrawal of money from the economic cycle
What are 3 open economy leakages
Taxes, Imports and Savings
What are injections
The flow of any spending that is not derived from income
What are the 3 open economy injections
Investment, government expenditure and export income
When is the economy in equilibrium
When leakages = injections
What are the two cases of an economy being is disequilibrium
Injections > Leakages
Injections < Leakages
How does national income increase when injections are greater than leakages
The excess in injections leads to additional demand
This demand must be satisfied
This results in an increase in the production of goods and services
How does national income decrease when injections are less than leakages
Excess in leakages leads to decreased demand
Demand for goods and services drop
Fewer goods and services are produced
Less income is generated
What is the equation for income and expenditure
Income = Expenditure
What are goods
Any tangible items that satisfy some human want or need
What are the 6 types of markets
Goods market
Factor Market
Financial market
Money market
Capital market
Foreign Exchange market
What are the 3 types of goods markets
Capital goods Market
Consumer goods market
Service market
What is the money market
Where short-term loans and very short-term funds are saved and borrowed by consumers and business enterprises
Products sold are bank debentures, treasury bills and government bonds
SARB is key
What happens in the capital market
Long term funds are borrowed and saved by consumers and business enterprises
Products sold are mortgage bonds and shares
The JSE is a key institution
What happens in the foreign exchange market
Businesses buy / sell foreign currencies to pay for imported goods and services
What is the aim of national accounts
To provide a systematic and comprehensive record of national economic activities
What is the SNA
System Of National Accounts - The internationally agreed standard set of recommendations on how to compile measures of economic activity.
What does the SNA record
How production is distributed among consumers, businesses, government and foreign nations
It shows how income originating in production, modified by taxes and transfers, flow to these groups and how they allocate these flows
What is the GDP
The total value of final goods and services, produced within the borders of a country for a specified period
What is the GNP
The total value of final goods and services produced by the permanent residents of a country for a specified period
