Circular flow: Growth

Question 1

The Factors of Production:

Answer 1

Describes the inputs used in the production of goods and services in order to make a profit.

Land (natural resources) r: rent
Labour (workers) r: wages/ income
Capital (investment of money or assets) r: interest Entrepreneurship (or management) r: profit

Question 2

Explain the relationship between the financial sector and the household sector

Answer 2

The financial` sector Relies on the household sector for savings — this acts as funds for banks which they will use fr investments—the more savings (from households) the more loans for investment (financial sector).

The household sector relies on the financial sector for interest.

Question 3

Savings and investment

Answer 3

Investment is the addition to the firm of capital resources, other name capital formation and gross fixed capital formation.

Investment = Capital formation = Gross fixed capital formation

Question 4

Injections and withdrawals explain

Answer 4

If withdrawals are greater than injections that economic growth falls.

If withdrawals are less than injections the economic growth with increase.

Between household and financial sector

Question 5

Injections examples

Answer 5

Investment, government expenditure, export expenditure.

Question 6

Withdrawals examples

Answer 6

Net savings, Net taxes, Import payments.

Question 7

Households and firms (savings and investment)

Answer 7

Savings - excess income (disposable) is put into banks/ financial institutions by households, they can not invest.
Investment- Firms borrow to purchase capital goods, they can not save.