circular flow of income Flashcards
closed economy
has no foreign trade/no government
households own wealth as…
factors of production
household supply these factors to firms for
- rent
- wages
- interest
- profits (dividends)
national output
value of the flow of good sand services to households
national expenditure
value of spending by households on goods and services
national income
value of income paid by firms to households in return for land , labour and capital
examples of injections
- investment
- gov spending
- exports
examples of withdrawals
- saving
- taxes
- imports
what does the economy need to equal to reach a state pf equilibrium
the rate of withdrawals = rate of injections
how does national output occur
if their are net injections into the economy
what happens if there is a contraction of production
net withdrawals
investment
spending by firms on capital equipment and stock
exports
goods and services form the UK sold to foreigners
gov spending
on schools, hospitals, investments
saving
money not spent
taxes
from income, profits
imports
products and services bought from other countries
What is the circular flow of income?
The circular flow of income is an economic model that illustrates the movement of money, goods, and services between households and firms in an economy.
True or False: In the circular flow model, households provide factors of production to firms.
True
Fill in the blank: In the circular flow of income, firms pay _____ to households for the use of their resources.
wages
Which of the following is NOT a component of the circular flow of income?
A) Households
B) Government
C) Foreign Investment
D) Weather
D) Weather
What role does the government play in the circular flow of income?
The government collects taxes from households and firms and provides public goods and services, influencing the flow of income.
where does gov borrow money from
national debt is borrowed and is eventually paid back which is ultimately paid back by tax payers
what is a gilt
it is a government bond which allows the gov to loan money in exchange for an agreed upon interest rate
who are gilts mainly bought by
- financial institution; pension/investment funds
- banks
- insurance companies
what happens to gilts when the national debt increases
the gov has to pay more on al the bonds it has sold
how much of the yearly spending is on debt
10%
aggregate demand formula
C+I+G+(X-M)
