the circular flow of income Flashcards
what do households provide to the economy and businesses
they provide labour to produce goods and services, and they also provide consumption of goods and services
what do businesses provide to the economy and households
businesses provide goods and services and they also provide wages/salaries
how does the circular flow of income work
as businesses provide goods and services, households spend their wages on these goods and sevices known as consumption, this then allows businesses to produce more goods, while also paying households their wages.
what is an injection
an injection is money going back into the economy or the introduction of income into the flow
what is a withdrawal/leakage
money leaving the economy/being taken out from it
what are 3 injections
investment, government spending, exports
why are exports an injection
exports are goods made in the uk sold abroad, as more countries buy goods from the uk it brings in more money
what are 3 withdrawals
savings, taxes, import expenditure
what happens to the economy when injections>withdrawals
it shrinks as more money is leaving the economy than entering
what happens to the economy when withdrawals>injections
it will grow/expand
what does national income measure
the total value of goods and services a country produces over a certain period of time
what is nominal income
income before taking into account the rate of inflation
what is real income
income after taking into account the effect of inflation, for example if income rises by 5% but inflation is at 10% then incomes are actually at -5%
what happens to national income when injections are higher than withdrawals
national income will decrease
income=output=expenditure
