Unit 3: The Circular Flow Of Income And Spending Flashcards
What are the 3 major flows in the economy. Give a brief description of each.
Production - the production flow comprises the production of goods and services by firms
Income - the income flow involves the flow of income to households
Spending - the spending flow entails the spending by households on goods and services produced by the firms
What are the types of income associated to the FOP
Rent - natural resources (land)
Wages and salaries - labour
Interest - capital
Profit - entrepreneurship
Draw the circular flow of the 3 major flows in an economy
Describe who are the participants in the main circular flow
In a mixed economy the households, firms, government and foreign sector are all participants on the production process. They all contribute towards total production, they all earn income and they all spend their incomes.
What is a factor market?
Factor market is the market in which the FOP are bought and sold
Households supply businesses with the FOP in exchange for an income in the form of wages, salaries, rent and profits
Two active participants on this market households and firm
What is a good market
It is in the goods market that households buy those goods and services and the producers supply their goods and services
Two active participants in this market are households, as the demanders and firms as the suppliers
What is the difference between stocks and flows
A stock has no time dimension and can only be measured at a specific moment. E.g capital, liabilities, unemployment
A flow has a time dimension and can only be measured of a period. E.g income, profit, loss
Draw a circular flow of income and spending that includes government, households, firms, goods market and the factor market. Explain what is happening in the graph
Draw a circular flow that includes the major elements of income and spending and explain what is happening
