National Income Flashcards
What is the circular flow of income?
The circular flow of income is an economic model that illustrates how money and goods/services move through an economy
What are the main economic agents in the circular flow of income?
Households
Firms
Government
Foreign Sector
How are households involved in the circular flow of income?
Households provide the factors of production to firms and receive wages, rent, interest and profit
How are firms involved in the circular flow of income?
Firms produce goods and services and pay wages to households
How is the government involved in the circular flow of income?
The government collects taxes and provides merit and public goods
How is the foreign sector involved in the circular flow of income?
The foreign sector involves exports and imports
What is the definition of income?
Income refers to the flow of money received by an individual or household over time, such as wages or interest
What is the definition of wealth?
Wealth is the stock of assets owned by a person, including property, stocks, and savings
What are injections and withdrawals?
Injections are additions of income into the flow
Withdrawals are leakages of income out of the flow
What are the 3 injections?
Investment
Government Spending
Exports
What are the 3 withdrawals?
Savings
Taxes
Imports
What is a 2 sector economy?
A 2 sector economy includes 1 injection and 1 withdrawal:
- Investment
- Savings
These are from households and firms
What is a 3 sector economy?
A 3 sector economy includes 2 injections and 2 withdrawals:
- Investment
- Government Spending
- Savings
- Taxes
These are from households, firms, and the government
What is a 4 sector economy?
A 4 sector economy is the same as 3 sector economy (Investment, Government Spending, Savings, Taxes) but also includes the foreign sector.
Therefore they include households, firms, the government, and the foreign sector
