Circular flow of income Flashcards
1
Q
What are the two fundamental economic objectives?
A
Households and firms
2
Q
How does the circular flow of income work?
A
- Households and firms provide the 4 factors of production to firms
- firms combine the CELLS to make goods and services
- households receive incomes from firms
- labour-wages,land-rent, enterprise-profit and capital-interest.
3
Q
Will every consumer receive income are they going to spend it all?
A
They will put some into savings.
4
Q
What are the leakages?
A
savings, imports and tax
5
Q
what does a leakage mean?
A
This happens when money is flowing out of the economy.
6
Q
what does an injection mean?
A
Injection means when is flowing into the economy.
7
Q
what are the injections?
A
Consumer expenditure,investments and exports.
8
Q
When the level of leakages is greater than injections
A
Economic growth decreases
9
Q
when the level of injections is greater than leakages?
A
Economic growth increases
