Circular Flow Of Income Flashcards
3 methods of calculating national income
expenditure method
income method
output method
how to calculate expenditure method
GDP= C+I+G+(X-M)
how to calculate income method
sum of the 4 different type of incomes- land, labour, capital and enterprise
how to calculate output method
value added by each enterprise in the production phase is measured
what is circular flow
connections between different sectors- shows the flows of goods and services and factors of production between firms and households
what is the circular flow of income pattern
production, income, expenditure, production
what are physical flows
movement of goods, services and labour
what are monetary flows
movement of money in return for the physical flow
what are leakages
not all income will flow from households to businesses directly:
savings
taxes
spent on imports
what are withdrawals
increases in savings, taxes or imports- reduce the circular flow of income and national income
what are injections
additions to investment, government spending or exports so boost the circular flow of income
- capital spending by firms (I)
- government expenditure G)
- UK export expenditure by foreign residents (X)
how to calculate APC
consumption/income
how to calculate APS
savings/income
MPC
how much consumption will change following a change in income
change in consumption/change in income
MPS
how much savings will change following a change in income
change in savings/change in income
MPM
change in imports/change in income
MPT
change in tax/change in income
MPW
MPS+MPT+MPM
factors that determine the MPC
income levels
temporary/permanent rise in income
interest rates
consumer confidence
what is short run
year long- at least 1 factor of production is fixed
what is long run
more than 1 year long- all factors of production of a firm are variable
aggregate supply
total output that producers in an economy are willing and able to supply at a given price level I a given time period
at higher prices what will happen to supply
more will be supplied as there are more profits available
3 points of a Keynesian AS curve
1- AS is perfectly elastic, low output, high unemployment
2-higher output, low unemployment
3-AS curve perfectly inelastic maximum output, 0 unemployment
what is equilibrium
a condition or state in which economic forces are balanced
