Circular Flow Of Income Flashcards
What does income measure
The flow of money a person or economy receives each year
What is wealth
The sum/ stock of all your assets added up
Define assets
Items that you own
What do firms buy
Factors of production and pay factor incomes to households in return
What is meant by factor incomes
The money paid by firms to households in return for factors of production
What is real GDP
Measures National output, measures stuff really being produced in an economy
How do we measure national output
Real GDP
What is equilibrium National income
Level of income at which withdrawals from the circular flow of income equal injections into the flow
What happens when withdrawls exceeds injections
The resulting net leakage of spending from the circular flow of income causes output and income to fall
What are the factors of production and what are the factor incomes for each
Land - rent
Labour- wages
Capital- interest
Enterprise - profit
What are withdrawals
TAxation
Savings
Imports
What are injections
Government spending
Exports
Investment
What happens when injections are more than leakages
The economy will grow - GDP will increase
What happens to national income when government increase income tax rates
Decreases
What happens to national income when govt increases govt spending
Increases
What type of economies are countries that trade in
Open economies
