Macro 2 - Circular flow of income and GDP Flashcards
1
Q
What is an economic agent?
A
An individual or company that influences an economy by producing, selling or buying goods and services or investing money. Examples are households, firms and the government
2
Q
What is the formula for GDP? What do each of the letters stand for?
A
GDP = C+I+G+(X-M) C is consumption (or household expenditure) I is investment G is government spending X is exports I is imports X-M is the net exports
3
Q
Why does income = output = expenditure?
A
Households spend (expenditure) the money they get from national income on the goods and services that firms create (output)
4
Q
What is national income?
A
Money paid to households by firms for providing factors of production is the national income
