The Economic Cycle And The Circular Flow Of Income

Question 1

Leakages

Answer 1

Money that does not go to either firm of households (saving, imports)

Question 2

Circular flow of income

Answer 2

A basic model that describes how goods, services and money move around the economy

Question 3

Economic cycle

Answer 3

A pattern of peaks and troughs in growth experienced by economies

Question 4

Recession

Answer 4

A period of negative growth in two consecutive periods of negative growth

Question 5

Supply constraint

Answer 5

Limitations of the macroeconomies ability to respond to changes in AD because of the scarcity of factors of production e.g. natural resources

Question 6

Boom

Answer 6

Part of the trade cycle: when output is rising faster than the trend rate of growth

Question 7

Consumption

Answer 7

Refers to household expenditure on goods and services.

Usually the most significant proportion of AD

Question 8

Stagflation

Answer 8

where the economy’s GDP is falling, whilst prices are generally increasing .

It is opposing the norms of the economic cycle

Question 9

Injections

Answer 9

Sources of demand for firms output that does not arise from household/consumer spending in the circular flow of income (investment, government spending, exports)

Question 10

Balance of trade

Answer 10

The difference between a country’s imports and exports

Question 11

AS

Answer 11

Total output of the economy

Question 12

AD

Answer 12

Total spending on goods or devices in an economy