Circular Flow of Income Flashcards
AD and AS
What is the circular flow model?
An economic model which illustrates how money moves from producers to consumers and back again in an endless loop.
What are the primary players of the circular flow model?
Household and Corporations.
What are leakages to the model?
Money which is removed - not moving between households and corporations.
What are some examples of leakages?
Savings
Taxation
Imports
What are injections into the model?
Money which is added - money which begin moving between households and corporations.
What are some examples of injections?
Investments from firms
FDI
Government spending
Exports
What does a larger quantity of leakages mean for the model?
Reduction to movement within the model.
What does a larger quantity of injections mean for the model?
Increases to movement within the model.
What does the circular flow of income tell us about the economy?
The more/faster money is being distributed around the cycle, the more economic growth and vice versa.
What are the four components of aggregate demand?
Consumption.
Investment.
Government Spending.
Exports/Imports.
What is consumption affected by?
Consumer confidence.
Wages.
Interest rates.
Personal taxation levels.
Levels on employment and unemployment.
What is investment affected by?
Capacity utilisation
Confidence
Interest Rates
Levels of Corporation tax.
What is government spending affected by?
Government priorities and macro-economic objectives.
Stage in the economic cycle.
What is exports/imports affected by?
Exchange rates.
International competitiveness.
State of the global economy.
What is aggregate demand?
Total demand in an economy.