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ECONOMICS - YEAR 1 > TOPIC 2 > Flashcards

TOPIC 2 Flashcards

1
Q

WHAT IS THE CIRCULAR FLOW OF INCOME?

A

MONEY FLOW AROUND THE ECONOMY BETWEEN HOUSEHOLDS AND FIRMS.

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2
Q

WHAT IS AN INJECTION?

A

MONEY FLOW INTO THE CIRCULAR FLOW OF INCOME.

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3
Q

WHAT ARE EXAMPLES OF INJECTIONS?

A

GOVT SPENDING
INVESTMENT
EXPORTS

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4
Q

WHAT IS FDI?

A

FOREIGN DIRECT INVESTMENT IS
WHEN FIRMS INVEST IN OTHER COUNTRIES BY BUILDING FACTORIES OR TAKING OVER FOREIGN COMPANIES.

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5
Q

WHAT IS A WITHDRAWAL?

A

MONEY FLOW OUT OF THE CIRCULAR FLOW OF INCOME.

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6
Q

WHAT IS EXAMPLES OF WITHDRAWALS?

A

SAVING
TAXATION
IMPORTS

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7
Q

WHAT IS THE MULTIPLIER?

A

THE KEYNESIAN IDEA THAT AN INJECTION INTO THE CIRCULAR FLOW OF INCOME WILL CREATE A GREATER INCREASE IN DEMAND THAN THE ORIGINAL INJECTION.

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8
Q

WHAT DOES THE SIZE OF THE MULTIPLIER DEPEND ON?

A

HOW MUCH PEOPLE SAVE
HOW MUCH PEOPLE SPEND
TAX RATES
WHETHER PEOPLE BUY IMPORTS OR DOMESTICALLY PRODUCED GOODS
WHETHER FOREIGN CURRENCY INFLOW IS INVESTED DOMESTICALLY OR ABROAD

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9
Q

WHAT IS THE MARGINAL PROPENSITY TO CONSUME?
(SAME FOR ALL MPS)

A

PERCENTAGE OF EACH ADDITIONAL POUND EARNED THAT WILL BE SPENT ON DOMESTIC GOODS AND SERVICES.

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10
Q

WHAT ARE THE FORMULAS FOR THE MULTIPLIER?

A

1 ÷ 1-MPC
1 ÷ MPW

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11
Q

WHAT IS THE FORMULA FOR MPW?

A

MPS + MPT + MPM

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12
Q

WHAT ARE THE ROLE OF FINANCIAL MARKETS?

A
  1. FACILITATE SAVING
  2. LEND TO BUSINESSES AND HOUSEHOLDS
  3. FACILITATE EXCHANGE OF GOODS AND SERVICES
  4. PROVIDE FORWARD MARKET FOR CURRENCIES AND COMMODITIES
  5. PROVIDE A MARKET FOR EQUITIES
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13
Q

WHAT IS THE EXPLANATION FOR FACILITATING SAVING?

A

HOUSEHOLDS NEED ABILITY TO SET ASIDE MONEY FOR FUTURE PURCHASES AND FINANCIAL MARKETS ENABLE THIS.

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14
Q

WHAT IS THE EXPLANATION FOR LENDING TO BUSINESSES AND HOUSEHOLDS?

A

BUSINESSES NEED TO BORROW FOR INVESTMENT AND HOUSEHOLDS NEED TO BORROW TO FUND SPENDING, PARTICULARLY ON EXPENSIVE ITEMS E.G HOUSES.

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15
Q

WHAT IS THE EXPLANATION FOR FACILITATING THE EXCHANGE OF GOODS AND SERVICES?

A

IN DEVELOPED COUNTRIES, GOODS AND SERVICES ARE OFTEN PAID FOR USING BANK TRANSFERS, CONTACTLESS PAYMENTS OR DEBIT/CREDIT CARDS.

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16
Q

WHAT IS THE EXPLANATION FOR PROVIDING FORWARD MARKETS FOR CURRENCIES AND COMMODITIES?

A

WHEN ORGANISATIONS WANT TO REDUCE THE UNCERTAINTY CREATED BY FUTURE CHANGE IN PRICES, THEY WILL AGREE TO BUY/SELL A GOOD IN ADVANCE AT A SET PRICE -REDUCES RISK OF VOLATILITY FOR COMMODITIES E.G OIL.

17
Q

WHAT IS THE EXPLANATION FOR PROVIDING A MARKET FOR EQUITIES?

A

COMPANIES NEED TO RAISE MONEY FOR INVESTMENT BY SELLING SHARES.

18
Q

HOW COULD FINANCIAL MARKETS BE SET UP IN DEVELOPING COUNTRIES?

A

USE OF MICROFINANCE
INCREASED URBANISATION
RISE OF INTERNET BANKING SOLVES ISSUE OF NO ACCESS FOR RURAL COMMUNITIES

19
Q

WHAT IS INCOME?

A

THE AMOUNT OF EARNING DURING A PERIOD.
IS A FLOW CONCEPT
REWARD FOR A SERVICE PRODUCED BY A FACTOR OF PRODUCTION.

20
Q

WHAT IS AN EXAMPLE OF INCOME?

A

WAGES

21
Q

WHAT IS WEALTH?

A

A STOCK OF ASSETS

22
Q

WHAT IS AN EXAMPLE OF WEALTH?

A

OWNING HOMES

23
Q

WHAT IS THE LINK BETWEEN INCOME AND WEALTH?

A

INCOME LEADS TO WEALTH AS PEOPLE USE EARNINGS TO GENERATE WEALTH.
WEALTH LEADS TO HIGHER INCOMES AS PEOPLE CAN EARN INCOME FROM ASSETS.

24
Q

WHAT IS THE WEALTH EFFECT?

A

IDEA THAT AN INCREASE IN WEALTH ACCOMPANIES AN INCREASE IN SPENDING.

25
Q

WHAT IS AD?

A

THE TOTAL DEMAND OF NEW GOODS AND SERVICES IN AN ECONOMY OVER A PERIOD OF TIME.

26
Q

WHAT IS THE FORMULA FOR AD?

A

CONSUMPTION + INVESTMENT + GOVT SPENDING + EXPORTS - IMPORTS

27
Q

WHAT IS CONSUMPTION?

A

SPENDING BY HOUSEHOLDS ON DOMESTICALLY PRODUCED GOODS AND SERVICES.

28
Q

WHAT PERCENTAGE OF AD IS CONSUMPTION?

A

60%

29
Q

WHAT IS INVESTMENT?

A

SPENDING BY FIRMS AND GOVT ON CAPITAL GOODS.

30
Q

WHAT PERCENTAGE OF AD DOES INVESTMENT TAKE?

A

15-20%

31
Q

WHAT IS GOVT EXPENDITURE?

A

TOTAL AMOUNT OF EXPENDITURE BY GOVT ON INFASTRUCTURE, INVESTMENT, HEALTHCARE, GOVT EMPLOYEES, DEFENSE AND PUBLIC GOODS AND SERVICES.

32
Q

WHAT PERCENTAGE OF AD IS GOVT SPENDING?

A

18-20%

33
Q

WHAT PERCENTAGE OF AD IS THE TRADE BALANCE?

A

5%

34
Q

WHAT CAUSES A SHIFT IN THE AD CURVE?

A

CONSUMPTION
INVESTMENT
GOVT EXPENDITURE
TRADE BALANCE

ECONOMICS - YEAR 1 (6 decks)

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