The circular flow

Question 1

What do the HOUSEHOLDS give to the FIRMS?

Answer 1

Households (consumers) give:

• expenditure
• the factors of prod (Land, labor, Capital, Enterprise)

Question 2

What do the FIRMS give to the HOUSEHOLDS?

Answer 2

Firms give:

• income
• goods + services

Question 3

What are withdrawals

Answer 3

Withdrawals are leakages in the economy

Question 4

What are injections

Answer 4

Injections are things going into the economy, making it expand

Question 5

What does the circular flow represent

Answer 5

It represents the macro objectives of economic growth, measured by GDP

Question 6

Give me facts about the Households

Answer 6

• households own the factors of production. They are hired by producers who arrange them to produce goods and services in return for wages, rent, interest and profit. This provides income too the households
• Households are also known as consumers. They will spend their income on the goods + services, sold by producers. This is known as consumer expenditure

Question 7

What is the Business Sector

Answer 7

The primary economic function of the business sector is the production of goods and services. The business sector contains:

• investment
• savings

Question 8

What is the Government Sector

Answer 8

The primary function of the government sector is to impose resource allocation decisions on the rest of the economy. It contains:

• government spending
• tax/taxation

Question 9

What is the Trade Sector

Answer 9

The trade sector is the portion of the economy that engages in international trade, providing trade services. It includes:

• imports
• exports

Question 10

What are the three main sectors of the circular flow

Answer 10

• Trade
• Government
• Business

Question 11

What 2 sectors does the 2 sector model of the circular flow contain

Answer 11

• Money market (expenditure + income)

- Factors + goods market (Factors of prod + goods + services)

Question 12

What do the injections have

Answer 12

• exports
• gov spending
• business investments

Question 13

What do the withdrawals have

Answer 13

• imports
• savings
• tax

Question 14

If ______ are greater than ______ the economy will grow

Answer 14

If injections are greater than withdrawals the economy will grow

Question 15

If _____ are greater than ____ the economy will contract

Answer 15

If withdrawals are greater than injections the economy will contract