Unit 1 - 1.3 Understanding the world by use of models

Question 1

Model

Answer 1

A simplified version of something in the real world.

Question 2

Production possibilities

Question 3

Economic growth

Answer 3

injections greater than withdrawals

Question 4

Actual Growth

Question 5

Circular Flow of Income

Answer 5

Hudosn to check

an economic model that illustrates the money flows in an economy

shows that in any given time period (say a year) the value of output produced in an economy is equal to the total income generated in producing that output which is equal to the expenditures made to purchase that output.

There is a simple model which shows the money flows between households and firms

There is a more complex model which adds in other economic agents including the government, financial sector and foreign trade (net exports)

Question 6

Injections

Answer 6

add money into the circular flow of income and increase its size

Increased government spending (G)

Increased investment (I)

Increased exports (X)

Question 7

Leakages

Answer 7

Leakages (withdrawals) remove money from the circular flow of income and reduce its size

Increased savings by households (S)

Increased taxation by the government (T)

Increased import purchases (M)

Question 8

Interdependence

Answer 8

There are high levels of interdependence between households, firms, the government, the financial sector, and the foreign sector (foreign firms and households).

Question 9

Name the paired together leakages and injections

Answer 9

leakages - injections
saving - investment
taxes - government spending
imports - exports