MacroEconomics Flashcards
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What is the circular flow of income?
A simple economic model which describes the reciprocal circulation of income between producers and consumers
What are factors of production?
Land, labour, enterprise and capital
What are the assumptions made for the closed economic model of the circular flow of income?
- No government sector (tax or capital injections)
- No exports or imports
- All money earned is spent (none saved)
What is national output?
Economic output produced by firms
What is economic output?
quantity of goods or services produced in a given time period, by a firm, industry, or country
What is National Income?
The total income received by people in the economy.
What is National expenditure?
Total amount spent on goods and services
Give examples of ‘injections’ into the circular flow of income
- Capital produced through exports
- Private investment
- Public spending
What are capital injections?
Spending that puts money into the circular flow
What are withdrawals/leakages?
Items that take money out of the circular flow
Examples of withdrawals/leakages?
- Savings
- Imports from abroad
- Taxes
What are commercial banks?
Banks such as Barcalys, Natwest etc. that hold money for masses of people
What is the current bank rate?
The interest rate
What is a base rate?
The interest rate
What is quantitive easing?
Injecting more money (liquidity) into the economy by buying assets
Effects of quantitive easing?
- More money for people to spend= better economy
- Inflation
What does the Bank of England do?
- Holds money for the government
- Holds money from commercial banks
What is the effect of the independence of the Bank of England?
The B of E sets it own monetary policy for the good of the country rather than the good of an individual party
Methods of measuring an economy’s wealth
- National Income
- National output
- Expenditure method
What is GDP?
‘Gross domestic product’- The value of goods & services produced over a given time, usually 1 year
How can resources be described?
Scarce or Finite
How are human wants described?
Infinite
What is the economic problem between ‘human wants’ and ‘resources’
Human wants are infinite but resources are finite
Give the 3 economic problems of production
- What to produce
- How to produce
- Whom to produce to