Circular flow of income

Question 1

Define income

Answer 1

measures the flow of money an economy recieves each year

Question 2

Define wealth

Answer 2

the sum, or stock, of all your assets added up

Question 3

Can income turn into wealth?

Answer 3

yes, overtime

Question 4

What is the circular flow model?

Answer 4

Firms———>Households
G+S
Firms<———Households
Spending
Firms———>Households
Factor incomes
Firms<———Households
FOPs

Question 5

What are factor incomes?

Answer 5

Labour——>wage
Land——> rent

Question 6

Explain income=expenditure=output

Answer 6

Everything households spend comes from factor incomes. These spendings go towards output, therefore income=spending=output

Question 7

What is Real GDP?

Answer 7

The total value of goods and services the economy produces per year, adjusted for inflation

Question 8

How do we measure national output?

Answer 8

Using real GDP

Question 9

What are the 3 withdrawals?

Answer 9

Taxation
Saving
Importing

Question 10

What are the 3 injections?

Answer 10

Investment
Exporting
Government spending

Question 11

What happened to the economy if withdrawals are greater than injections?

Answer 11

The economy will shrink because money is leaving the circular flow