Circular Flow Of Income And Factors Of Production Flashcards
Define factors of production
Four reasons that allow an economy to produce its output.
Describe land(factor of production)
Natural resources available for production
Describe labour(factor of production
Human input into the production process. Physical or mental contribution
What is the circular flow of income
How money flows around an economy and begins to show us a basic view of how an economies output may grow or shrink.
What are households
The people that buy a nations output of goods and services and the owners of all an economy’s factor of a production
What is a firms in circular flow of income
The people that buy a nations output of goods and services and the owners of all an economy’s factor of production
What are the three withdrawals
Saving, taxation, imports
What are three injections
Investment, government spending, exports
How are FOP paid for
Wages for labour, rent for land
What happens if an economy withdrawals and injections are equal
Equilibrium
How is national income calculated
GDP(gross domestic product)
What are three ways of calculating GDP
Output method
Income method
Expenditure method
Describe the output method(MV)
This measures the monetary value of all physical goods and service produced in an economy(minus the cost of producing them)
What is the income method
Measures all income earned in an economy
What is the expenditure method
This measures all spending in an economy by household consumption(C), firms investment(I), govenerment spending(G) and exports minus imports(X-M)
What is nominal GDP
Nominal GDP measures the value of national output at current prices i.e. there is no adjustment made for effects of inflation
What is real GDP
Value of goods and services produced by an economy in a year that counts for an economy in a year
What is GPD per capita
A way of calculating how relative a nations incomes is compared to other differently sized nations.
GPD per capita divides a nations GDP by its population to give a figure per head.
What do governments want to Do with their economies
Low or stable inflation rate
Economic growth
Low unemployment rate
International trade: balance of payments
What are three supplementary economic policy objectives
Equality of income distribution
Government budgets
Environmental wellbeing 4
What is macroeconomics
The study of the performance and behaviour of an economy as a whole and it also analyses the global(international) economic system.
The governments main objectives aim to maximise the performance of the macroeconomy
What is achieving on equitable distribution of income
Rising living standards and a fall in relative poverty - cutting child poverty and reducing pensioner poverty
What is balancing the government budget
Sound government finances - including control over state borrowing and the total national debt
What is economic growth
An increase in the amount of goods and services produced over a period of time
HOw is economic growth measured and what is it
GDP - calculates the value of all goods and services produced within an economy in a year
How to calculate real GDP
Real GDP = nominal GDP/price level x100
How to calculate real gdp per capita
RGDP per capita = RGDP/population
What is gross national income
The flow of new output produced by an economy in a particular time period, i.e a year. GNI also included income assets that British residents and companies own in other countries. It also includes flows out of the country to overseas owner of assets in the UK
What is inflation
Sustained rise in the average of goods and services in an economy
What is it called if prices rise
Inflation
What is it if prices fall
Deflation
What is prices rise but not as much as previously
Disinflation
What are two ways for measuring inflation
CPI - this is a basket of goods measure t inflation by taking the average weighted prive level of a basket of goods and it comparing it between goods
RPI - has an element of knowing such as council and mortgage interest payments
Two main methods of calculating unemployment
Claimant count - people claiming benefits for unemployed
Labour force survey
What is purchasing power parity
Measures the total amount of goods that a single unit of a country currency can buy in another county
What is meant by macroeconomic stabillity
Economic stability occurs when there is low volatility in key indicators such as prices, jobs, economic growth, interest rates, investment and trade
How to calculate inflation rate(formula)
Inflation rate = index for (x+1) - index for X/index for x x100
