Circular flow of income Flashcards
Name 3 positives of investment
Uses profits, Improves effeciency, Raises capicity, Capital can substitute labour (cheaper), Exploit economies of scale, Provides barrier to entry so start ups can’t compete
Net investment =
Gross investment - capital depreciation/consumption
What is investment in economics?
Adding of CAPITAL stock to the economy
What is the balance of payments?
Record of all financial dealings between two countries
What is the balance of payments split into (and which bit is more important for year 1 macro)
Current Account (Important), capital and financial accounts
What is the current balance
Net trade (difference between exports and imports)
Current account surplus =
Exports>Imports
Current account deficit =
Imports>exports
Why are current account deficits problems in the long run?
means a country is living beyond its means -leads to debt
What is the current account split into?
Visibles (goods) and Invisibles (services)
What is Hot Money?
IR proportional to ERHigher interest rates increase saving which increases speculative money flows into the UK, appreciating the pound
What are Primary and Secondary incomes in the current account?
Primary is investment income
Secondary is transfers between organisations or governments
What goes from households to firms in the circular flow model?
Factors of Production, Expenditure
What goes from firms to households in the circular flow?
Wages etc, G+S
What are the injections?
Investment, Exports, Government spending
