Circular flow of income Flashcards
what is the circular flow of income ?
circular flow of income -an economic model showing the flow of goods and services , the factors of production and their payments between households and firms in an economy.
what are injections ?
what are leakages ?
-injections - extra money coming into the economy
( Government expenditure , Investments, Exports )
- leakages - money coming out of the economy
( saving , imports, taxes)
what are factors that influence export and imports ?
- Exchange rate
- cost of the good
- Trade barriers(Tariff & Quota)
- ability to produce a good
what is the formula for Aggregate demand?
AD = C + I + G + (X-M) AD = consumption + Investments + Government expenditure + Net exports
what is a short run ?
what is long run?
short run is that capital goods are fixed
long run is that capital goods are variable
what is the largest component in AD ?
consumption
what determines the level of consumption in a household?
- Income
- level of debt
- levels of wealth
- confidence
- interest rates
what are interest rates ?
the cost of borrowing and the reward for saving
what determines the level of saving?
- confidence
- interest rates
- inflation
what determines the level of investments ?
- interest rates
- confidence
- government incentives
- profit levels
- economic growth
what is disposable income in economics ?
disposable income is is left over money after paying bills ; this is used to be saved
what is supply side shock ?
supply side shock ; this is temporary shocks in supply
e.g an increase in price of material or exchange rates
what is the multiplier ?
what is the formula for the multiplier ?
- A multiplier means the initial change in aggregate demand can have a much greater final impact on the GDP
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Leakages or MPW
what is the function of money
medium of echange
store value
unit of account
standard payment
