Circular Flow of Income Flashcards
1
Q
What is national income?
A
measures the value of the output of goods and services produced in an economy over a period of time
2
Q
Give the methods of calculating national income.
A
income/ output/ expenditure method
(income = output = expenditure)
3
Q
What assumptions are made in the circular flow model?
A
- that households spend all their income on goods and service
- that firms spend all their income on factors of production
- that there is no government or foreign trade
4
Q
What are the injections within the circular flow?
A
investment, exports of goods & services, government spending
5
Q
What are the leakages within the circular flow?
A
savings, imports of goods and services, taxation
6
Q
When is their equilibrium in the circular flow model?
A
when leakages = injections
