National Income Flashcards
What is national income?
the monetary value of the flow of output produced in an economy over a period time.
What are the role of households?
own the productive resources of the nation, which they exchange for rent, wages, interest and profit; they use the income earnt to buy goods and services
What are the role of firms?
hire the resources as inputs to use them to produce output; they sell the goods and services produced to households.
What does the circular flow model look like?
What happens in the circular flow?
Households earn income by selling their factors of production to firms and use it to purchase goods and services produced by the firms, which use up these resources
What happens to income in the financial sector?
not all income is spent; some is saved; the financial sector lends income saved to businesses to invest
What happens to income in the government sector?
some income is taken out of the flow as tax, but the government also spends which injects income into the flow
What happens to income in the foreign sector?
some income flows out to other countries when imports are purchased; exports add to the flow of income because income comes in from outside the economy
What are injections?
Injections add money to the circular flow of income, which can lead to economicgrowth; they areinvestment I, government consumption G and exports X.
What are withdrawals?
Withdrawals remove money from the circular flow of income, which can lead toeconomic contraction; they are savings S, taxation T and imports M.
What is the national income equilibrium?
planned injections = planned withdrawals
If injections exceed withdrawals, national income rises (economic growth)
If withdrawals exceed injections, national income falls (economic contraction).
What is wealth?
Wealth is a stock concept – it is the value of assets held; assets includes income saved, vales of shares & property owned, money held in pension funds
What is income?
Income is a flow of money going to factors of production – it includes wages & salaries, rent, profits, people receiving benefits, interest paid.
How are income and wealth NOT the same, but related?
people with higher incomes can build up their wealth; wealth can generate an extra source of income. Wealth is more unevenly distributed than income.
