Name the factors of production and return (x4)
Natural resources - rent
Labour - Wages
Capital - Interest
Enterprise - Profit
Describe the scarcity in each of the factors of production (x4)
Land - There are finite amounts of natural resources available for production
Labour - Supply of labour is limited by population size, skills and willingness to work
Capital - Supplies of capital are limited by the extent to which governments and the private sector are willing to invest and levels of domestic savings for investment
Enterprise - Supplies of entrepreneurial skills are limited to population size and a range of other cultural and economic factors, most importantly, innovation and risk taking
What is GDP?
The total amount of goods and services produced in a year.
What is the business cycle?
Fluctuations in the level of economic growth due to either domestic or international factors
Name the impacts of a recession (x4)
- Falling production of goods and services
- Falling levels of consumption and investment
- Rising unemployment
- Falling income levels and quality of life
Impacts of a boom (x4)
- Increasing production of goods and services
- Rising levels of consumption and investment
- Falling unemployment
- Rising income levels and quality of life
Investment
Any current expenditure that is made in order to obtain benefits in the future
What is equilibrium?
Sum of leakages = Sum of injections
Leakages > Injections (x4)
- Downturn in the level of economic activity
- Falling incomes
- Falling incomes
- Rising unemployment
Injections > Leakages (x4)
- Upturn in the level of economic activity
- Rising incomes
- Rising incomes
- Falling unemployment
What is investment?
Any current expenditure that is made in order to obtain benefits in the future
How may the government affect the circular flow of income?
The government can change levels of taxations, government revenue and therefore change the size of total leakages and injections and the overall level of economic activity
How do market economies distribute goods and services?
Based on the individual’s contribution to the production process i.e. larger contribution, more output
Circular flow of income model
Describes the operation of the economy and links between the main sectors in the economy
