Circular Flow

Question 1

What are the 4 participants in the circular flow

Answer 1

Households / Consumers
Businesses / Firms
State / Government
Foreign Sector

Question 2

What are the roles of the financial sector (5)

Answer 2

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

Question 3

What is the real flow

Answer 3

Goods and services and factors of production

Question 4

What is the money flow

Answer 4

The earning of money and payments that are made

Question 5

What is a leakage

Answer 5

The withdrawal of money from the economic cycle

Question 6

What are 3 open economy leakages

Answer 6

Taxes, Imports and Savings

Question 7

What are injections

Answer 7

The flow of any spending that is not derived from income

Question 8

What are the 3 open economy injections

Answer 8

Investment, government expenditure and export income

Question 9

When is the economy in equilibrium

Answer 9

When leakages = injections

Question 10

What are the two cases of an economy being is disequilibrium

Answer 10

Injections > Leakages
Injections < Leakages

Question 11

How does national income increase when injections are greater than leakages

Answer 11

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

Question 12

How does national income decrease when injections are less than leakages

Answer 12

Excess in leakages leads to decreased demand
Demand for goods and services drop
Fewer goods and services are produced
Less income is generated

Question 13

What is the equation for income and expenditure

Answer 13

Income = Expenditure

Question 14

What are goods

Answer 14

Any tangible items that satisfy some human want or need

Question 15

What are the 6 types of markets

Answer 15

Goods market
Factor Market
Financial market
Money market
Capital market
Foreign Exchange market

Question 16

What are the 3 types of goods markets

Answer 16

Capital goods Market
Consumer goods market
Service market

Question 16

What is the money market

Answer 16

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

Question 17

What happens in the capital market

Answer 17

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

Question 18

What happens in the foreign exchange market

Answer 18

Businesses buy / sell foreign currencies to pay for imported goods and services

Question 19

What is the aim of national accounts

Answer 19

To provide a systematic and comprehensive record of national economic activities

Question 20

What is the SNA

Answer 20

System Of National Accounts - The internationally agreed standard set of recommendations on how to compile measures of economic activity.

Question 21

What does the SNA record

Answer 21

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

Question 22

What is the GDP

Answer 22

The total value of final goods and services, produced within the borders of a country for a specified period

Question 23

What is the GNP

Answer 23

The total value of final goods and services produced by the permanent residents of a country for a specified period

Question 24

What are the 3 methods used to calculate GDP

Answer 24

Income
Expenditure
Production

Question 25

Look at methods on page 19

Answer 25

**

Question 26

What are the 3 costs of operating

Answer 26

Intermediate goods and services
Cost of compensation of workers
Cost of capital consumption

Question 27

How do you calculate GDP at Factor Cost

Answer 27

GDP at basic prices + Other taxes on production - other subsidies on production

Question 28

How do you convert basic prices to market prices

Answer 28

GDP at basic prices + taxes on products - subsidies on products = GDP at market prices

Question 29

How do you convert factor cost to market prices

Answer 29

GDP at factor cost + other taxes on production - subsidies on production = GDP at basic prices.
GDP at basic prices + taxes on products - subsidies on products = GDP at market prices

Question 30

What is net operating surplus

Answer 30

Surplus after taxes

Question 31

What is net income

Answer 31

Income after taxes

Question 32

What is net fixed capital formation

Answer 32

After consumption of fixed capital (Depreciation)

Question 33

What is net exports

Answer 33

Exports - imports

Question 34

How do you convert GDP at market prices to GNI at market prices

Answer 34

GDP + Factor income earned abroad by South Africans - Factor income earned in South Africa by foreigners

Question 35

What are nominal figures

Answer 35

Nominal or money value
National product at current prices
Inflation is not taken into account

Question 36

What are real figures

Answer 36

National product at constant prices
The rate of inflation is taken into account
Nominal values adjusted for price increase

Question 37

What is The Multiplier

Answer 37

The multiplier shows how an increase in spending produces a more than proportional increase in national income

Question 38

Where is the multiplier derived from in a two-sector model

Answer 38

MPC - Marginal Propensity to consume

Question 39

Look at Pages 22 and 23