Unit 3: The Circular Flow Of Income And Spending Flashcards

1
Q

What are the 3 major flows in the economy. Give a brief description of each.

A

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

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2
Q

What are the types of income associated to the FOP

A

Rent - natural resources (land)
Wages and salaries - labour
Interest - capital
Profit - entrepreneurship

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3
Q

Draw the circular flow of the 3 major flows in an economy

A
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4
Q

Describe who are the participants in the main circular flow

A

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.

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5
Q

What is a factor market?

A

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

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6
Q

What is a good market

A

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

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7
Q

What is the difference between stocks and flows

A

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

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8
Q

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

A
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9
Q

Draw a circular flow that includes the major elements of income and spending and explain what is happening

A
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10
Q
A
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