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Economics A-level > M 2.1 Circular Flow of Income > Flashcards

M 2.1 Circular Flow of Income Flashcards

1
Q

What is investment?

A

spending by businesses on additions to capital stock (new equipment, computers)

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2
Q

What is consumption?

A

spending by households on goods and services

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3
Q

What three terms all refer to the output produced by the economy in a particular period

A

national income, national output and national expenditure

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4
Q

What must the economy produce for the flow of national output?

A

a stock of physical capital goods, stock of human capital, stocks of land and entrepreneurship

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5
Q

What are the factors of production?

A

a stock of physical capital goods, stock of human capital, stocks of land and entrepreneurship

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6
Q

5 examples of physical capital goods?

A
  • roads
  • machinary
  • telecommunications
  • furniture
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7
Q

What is stock?

A

measured at one specific time, represents a quantity existing at that point which has accumulated in the past

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8
Q

What is a flow variable?

A

measured over an interval of time.

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9
Q

What is national capital stock?

A

the stock of captial goods in the economy that has accumulated over time

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10
Q

What is national wealth?

A

the stock of all goods that exist at a point in time that have value in the economy

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11
Q

What is the national capital stock?

A

part of the stock of national wealth which comprises all physical assets owned by the nations residents

  • excludes consumer goods
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12
Q

What is consumption/

A

total planned spending by households on consumer goods and services produced within the economy

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13
Q

What is the fraction of national income available for consumption is equal to?

A

differance between total national output and gross investment

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14
Q

in the short run what is the easiest way to increase living standards?

A

boost current consumption

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15
Q

What is GNI?

A

measurement of a country’s income which includes all income earned by a countrys residents and firms regardless of where its produced

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16
Q

what is national income?

A

measures incomes received by labour and other factors of production

17
Q

WHat is national output?

A

measures the actual goods and services produced by the economy

18
Q

national expenditure defo?

A

meausres the spending of incomes on goods and services

19
Q

What does national income = ?

A

national output = national expenditure

20
Q

What is the circular flow model?

A

an economic model showing the flow of goods and services, factors of production and their payments between households and firms within an economy

21
Q

Explain households in the circular flow of income?

A

recieve income through wages and salaries from their jobs and investments and they then buy goods and services supplied by firms

22
Q

Explain firms in the circular flow of income?

A

hire land, labour and capital inputs when making products for which they pay wages and rent. firms recieve payment from consumers

23
Q

Explain government in the circular flow of income?

A

collect taxes to fund spending on public services

24
Q

Explain external sector in the circular flow of income?

A

the Uk buys imports from other countries and overseas businesses and sonsumers buy UK products

25
Q

What is a closed economy?

A

economy with no international trade

26
Q

What are the two desicion makers in the CFI?

A

households and firms

27
Q

What are the two markets in the CFI?

A

product market and resource market

28
Q

What are the two transactions in the CFI?

A

resource markets - firms buy factors of production in resource market and use them to produce goods and services

product market: firm sell the goods and services to consumers in product markets

29
Q

What are the two flows in the CFI?

A

flow of money , flow of output

30
Q

What are the four factors of production and their payment?

A 
land = rent
labour = wage
capital = interest
entrepreneurship = proft
31
Q

What is household expenditure?

A

payment that househol make to buy goods and services

32
Q

What is household income?

A

income of household from selling goods and services

33
Q

What is revenue?

A

payments that firms recieve from selling goods and services

34
Q

what is costs of production ?

A

payment that firms make to buy factors of production

35
Q

What is a withdrawel?

A

a leakage of spending power out of the circular flow of income into savings, taxation or imports

36
Q

When is national income in equilibrium?

A

when total withdrawal is equal to total injection

37
Q

Equilibrium equation?

A

saving + taxation + imports = investment + gov spending + exports

38
Q

What is shrinking circular flow?

A

s + T + M > I + G + X

withdrawel is greater then injections, a net leakage of demand out of the circular flow occurs

39
Q

What is growing circular flow?

A

injection is greater than withdrawel

Economics A-level (35 decks)

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