Circular flow of income (CH 18) Flashcards
1
Q
Define Dividends
A
Income received by owners of firms and shares
2
Q
Define Leakages
A
Ways in which income escapes from circular flow between households and firms
3
Q
Define Injections
A
Addition to circular flow form sources other than households
4
Q
Main leakages
A
- Spending
- Taxes
- Imports
5
Q
Main injections
A
- Investment
- Govermment spending
- Exports
6
Q
Define Aggregate Demand
A
- total demand of the economy
- measures spending on G/S by consumers, firms, government and overseas consumers/firms
7
Q
What is Aggregate Demand made up by?
A
AD= C + I + G + (x-m)
(Consumption + Investment + Government spending and balance of trade)
8
Q
Role of Consumption
A
- Consumer spending by households G/S
- Income have impact on how much people spend
- Saving has opportunity cost of immediate consumption influenced by:
- Interest Rates
- Income/ Disposable
9
Q
Define Disposable income
A
What consumers can choose to spend after taxes and social security charges have been removed
10
Q
Factors influencing Consumer confidence
A
- Unemployment
- Taxes
- Interest Rates
- Inflation
- Firm’s confidence
11
Q
Role of Investment
A
- Spending on capital goods to increase productivity
- Firms invest for future profit
12
Q
Factors influencing investment
A
- Rate of economic growth
- Firm expectation/growth
- Demand for exports
- Interest rates
- Access to credit
- Government influence and regulations
13
Q
Role of government
A
- How much government spend on G/S (grants to firms)
14
Q
Factors influencing government spending
A
- Economic growth (during recessions government might increase spending to improve/control economy)
- Fiscal policy (changing taxation) by spending on public goods and merit goods. Will influence level of demand as if demand-side policy
15
Q
Role of Balance of Trade (Exports-Imports)
A
- Value of current account on the balance payments
- Positive value is a surplus
- Negative is a deficit
