Circular flow model , Business cycle Flashcards
What is the business cycle?
The level of fluctuations in economic activity; a cycle of ups and downs in economic output.
What characterizes an upswing in the business cycle?
Expenditure, output, income and employment levels rise.
What is a boom in the business cycle?
When expenditure, output, income and employment levels reach a maximum point as economic activity peaks.
What happens during a downswing in the business cycle?
Expenditure, output, income and employment opportunities begin to fall as economic activity decelerates.
Define recession in the context of the business cycle.
When expenditure, output, income and employment reach a minimum point as economic activity is at minima.
List the characteristics of an upswing phase.
- Expenditure
- Output
- Income
- Inflation
- Investment
- Quality of living
- Resource demand
- Employment
What is the stationary point in a boom phase?
Expenditure, output, income and employment at a stationary point (relative maximum).
What is the stationary point in a recession phase?
Expenditure, output, income and employment at a stationary point (relative minimum).
Why do governments intervene in the market during the business cycle?
To reduce the severity of impacts on individuals and the overall economy.
What is macroeconomic policy?
A key aspect of government intervention that aims to smooth out the business cycle and promote sustainable economic growth.
What does the circular flow of income model describe?
The operation of an economy and the linkages between the main sectors of the economy.
Who are considered individuals in the circular flow of income?
All the people in an economy earning an income and spending it on goods and services.
What role do businesses play in the circular flow of income?
Firms engaged in the provision of goods and services, paying individuals for input and receiving money for goods and services.
What are financial institutions responsible for in the economy?
Engaging in borrowing and lending of money, enabling investment and saving.
What is the purpose of government in the circular flow of income?
To satisfy collective wants through taxation of income and government expenditure.
Define imports in the context of international flows.
Goods and services that are produced overseas but bought by Australia.
Define exports in the context of international flows.
Goods and services produced by Australia but sold to other countries.
What are injections in the circular flow of income?
Flows of money that increase aggregate income and the general economic level of activity.
List the types of injections.
- Investment
- Expenditure
- Exports
What is the effect of taxation as a leakage?
Reduces the amount of money available for consumers to purchase goods or services.
What happens to the economy when total leakages are greater than total injections?
Economic activity slows down along with income, production and employment.
What occurs when total leakages are less than total injections?
Economic activity rises along with income, production and employment.
What is equilibrium in the circular flow of income?
When total injections are equivalent to total leakages.
What is disequilibrium?
When total injections are imbalanced with total leakages.
How can government policies affect the circular flow of income?
They can stimulate or dampen the economy in relation to leakages and injections.
