The operation of the economy Flashcards
The business cycle refers to the _____ ______ of economic activity
periodic fluctuations
Fluctuations in the economy are measured in ___
Gross Domestic Product (GDP)
What is the government’s main role in the business cycle?
- smooth out the business cycle
- reduce fluctuations
What is an upswing in the business cycle?
Increase in spending, increase in employment, economic growth
What is a boom/peak in the business cycle?
maximum spending, maximum employment, economic growth at peak
What is a downswing in the business cycle?
decrease in spending, decrease in employment, economic downfall
What is a bust/recession/ trough in the business cycle?
lowest point of spending, highest unemployment, lowest point in economic growth
What are the 5 main sectors in the circular flow of income?
individuals, firms, governments, financial, overseas
What is the household sector?
- consumers and all individuals, groups and families who buy goods and services
- those who provide factors of production to allow firms to undertake production (workers)
What is the firms sector?
- businesses that produce goods and services
- pay income to individuals
- provide goods and services to individuals
What is the financial sector?
- financial institutions+markets
- individuals can save their income
- investments
What is the government sector?
- takes income on tax
- uses tax money on government spending
What is the international sector?
- imports and exports
What are the injections into the economy?
money being added to the economy
- investments
- gov expenditure
- exports
What are leakages in the economy?
money being taken out of the economy
- savings
- tax
- imports
When is economic equilibrium achieved?
leakages=injections
When is economic growth achieved?
leakages<injections
When is economic downfall seen?
leakages>injections
