Circular Flow of Income Flashcards
1
Q
The circular flow of income
A
A simplified model of an economy which only consists of households and firms
2
Q
What is the role of households in the circular flow of income?
A
- provide labour to firms
- consume goods from firms
3
Q
What is the role of firms in the circular flow of income?
A
- provide income to households
- produce goods and services for households
4
Q
Leakages
A
- money that flows out of the circular flow of income
- income that is not spent on domestic output
- when money does not flow back from households to firms
5
Q
Three types of leakages
A
- imports
- savings
- taxation
6
Q
Injections
A
Money that flows in the circular flow of income
7
Q
Three types of injections
A
- exports
- government spending
- investments
8
Q
Gross domestic product
A
An increase in the level of economic growth and activity carried out in an economy over a period of time
9
Q
Three ways to measure GDP
A
1. Output
- The value of goods and services that are produced
2. Income
- the total sum of income received including rent, salary, dividends, interest
3. Expenditure
Individual consumption, private investments, government spending
