Circular Flows of Income Flashcards
Who are the 2 main economic agents within the circular flow of income?
Households and firms
What do households do within the economy?
Provide the factors of production to firms
Spend money on goods and services made by firms
What do firms do within the economy?
Make goods and services for households
Provide factor incomes for the factors of production
What are the 4 factor incomes?
Land - RENT
Labour - WAGES/SALARIES
Capital - INTEREST
Enterprise/entrepreneurship - PROFIT
What are the leakages/withdrawals of the circular flow of income?
Saving - S
Tax - T
Money spent on imports - M
What are the injections for the circular flow of income?
Investment (I)
Government expenditure (G)
Exports (X)
What can cause economic growth (in terms of injection and leakages)?
Injections > leakages/withdrawals
What can cause NEGATIVE economic growth (in terms of injection and leakages)?
Injections < Leakages/withdrawals
What can cause NO economic growth (in terms of injection and leakages)?
Injections = leakages/withdrawals
What 3 methods are used to calculate GDP from the circular flow of income?
Output method
Income method
Total expenditure
What is the output method of measuring GDP?
Measure final value of all goods and services produced in a year
What is the income method of measuring GDP?
Adding up all the factor incomes going into an economy
What is the total expenditure method of measuring GDP?
Total expenditure of all goods and services in a year
- Consumer
- Government
- investment
- net trade
(Same as aggregate demand)
