Macro: How The Macroeconomy Works Flashcards
What does the circular flow of income model provide
Circular flow of income model provides an illustration of the flow of money around an economy.
What do firms pay households for
Firms pay households for their factors of production (labour, land and capital)
What do house holds pay firms for
households pay firms for goods and services
Draw the circular flow of income model
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How is the labour paid for
Labour is paid for in wages
How is land paid for
Land is paid for in rent
How is capital paid for
Capital is paid for in interest
What does the owner of firms earn
The owner of the firm earns profit
Why do profits go to households as payments for enterprise
Because the owner is from a household, the profits also go to households as payment for ‘enterprise’
