Circular Flow of Income & Distribution Of Economic Resources - Chapter 12 Flashcards
Explain the circular flow of income and draw a diagram.
Circular Flow of Income shows the movement of economic resources and wealth throughout the economy.
What is a closed economy?
This is an economy that does not trade with any other country i.e. there are no imports or exports of goods & services.
What is an open economy?
An open economy is an economy where people and businesses trade goods and services with other countries e.g. Ireland buys oranges from Spain and sells milk to France.
Explain your understanding of leakages and injections.
When households do not spend all their money, their savings create a leak from the circular flow of income. Banks can lend this money to households, which is then injected back into the economy.
What is an economy?
An economy is the way in which goods and services are made, sold or used in a country or area.
What are three types of economic systems.
- Centrally Planned Economy e.g Cuba
- Free Market Economy e.g USA
- Mixed Economy e.g Ireland
What do economic systems deal with?
- Sharing of scarce resources
- Production of goods and services
- Distribution of goods and services
What is a centrally planned economy?
A centrally planned economy is one where the government makes all the decisions about how the economic resources of the country are used. All businesses are owned and run by the government and the people of the country are not involved in business ownership. Cuba is an example of a centrally planned economy.
What is a free market economy?
A free market economy is one where private citizens control resources, own businesses and make all the decisions about how goods and services will be produced. The government has little involvement in how the economic resources of the country are used. The USA is an example of a free market economy
What is a Mixed Economy?
A mixed economy is one where both the government and private citizens have control over the economic resources. The government control essential services for the people of the country like education and health. Ireland is a mixed economy.
What is the public sector?
The public sector is the part of the economy that is owned and controlled by the government. This sector provides essential services to the public e.g health, education
How many sections is the public sector split up into?
- Local government
- National government
- State-owned organisations.
What is the private sector?
The private sector refers to businesses owned by individuals that produce and sell goods and services with the aim of making a profit. e.g. Ryanair
What is the third sector?
The third sector of the Irish economy is made up of social enterprises and organisations that do not aim to make a profit (Aka NGOs) e.g charities
What are charities.
Charities are set up to benefit others by raising money through various activities like collections, fundraising events and charity shops. e.g. Oxfam
