Circular flow of income Flashcards
Define injection
Injections are income flows that enter the economic system of an economy, in the form of investment, government spending and exports.
Define leakage (withdrawal)
Leakages (or withdrawals) are income flows which does not flow back from households to firms, in the form savings, taxation and imports.
Methods of measuring real GDP (3)
Total income, Total output, Total expenditure.
Define Saving
is the part of income that is not spent; saving is a leakage from the circular flow of income.
Define Taxation
is the total flow of income to government; total tax revenue taken from firms and households; taxation is a leakage from the circular flow of income.
Define imports
is the total spending by domestic buyers (households, firms and government) on goods and services produced in foreign (external) economies; imports is a leakage in to the circular flow of income.
Define investment
is total spending on capital goods by firms; investment is an injection in to the circular flow of income.
Define Government spending
is the total spending on goods and services by government; government spending is an injection in to the circular flow of income.
Define Exports
is the total spending on goods and services in the domestic economy by foreign (external) buyers (households, firms and governments); exports is an injection in to the circular flow of income.
Define Income method for measuring GDP
Measures the total income flows paid for all the factors of production.
Wages + Rent + Profit + Interest + other incomes - stock appreciation.
Define Output method for measuring GDP
Measures the total output produced by all four sectors of the economy.
Primary sector output +
Secondary sector output + Tertiary sector output +
Quaternary sector output
- stock appreciation.
Define Expenditure method for measuring GDP
Measures the net total spending for domestically produced goods and services.
C + I + G + (X-M)
