Circular Flow of Income Flashcards
What are the economic agents involved int he circular flow of income?
Households (people)
Firms
Government
What do households do in the circular flow of income?
Provide factors of production
Spend money on goods and services made by firms
What are the returns (factor incomes) for each factor of produciton?
Land - RENT
Labour - WAGES
Capital - INTEREST
Enterprise - PROFIT
What is the role of firms in the circular flow of income?
Combine factors of production to make goods/services
Give factor incomes to the factors of production
What are the “leakages” in the economy?
Savings (S)
Taxation (T)
Imports (M)
What is a “leakage”?
Something that takes money out of an economy
What is an “injection”?
Something that puts money into the economy
What are the “injections” into the economy?
Investment (I)
Government spending (G)
Exports (X)
What shows economic growth?
The relationship between the leakages and injections into the economy
What are the 3 methods of calculating GDP?
Output method
Income method
Expenditure method
What is the output method?
Measuring the final value of all goods and services
What is the income method?
Adding up all factor incomes
What is the expenditure method?
Adding up consumption, government spending, investment and net exports
