Week 2 Flashcards
Circular flow of income (Withdrawals) + equations
Incomes of households or firms that are not passed
on round the inner flow. (i.e. money leaving the
circular flow)
* Withdrawals equal net saving (S) plus net taxes (T)
plus import expenditure (M):
* W = S + T + M
Circular Flow of income (Injections) + equation
Expenditure on the production of domestic firms
coming from outside the inner flow of income. (i.e.
money entering the circular economy)
* Injections equal investment (I) plus government
purchases (G) plus expenditure on exports (X).
* J = I + G + X
examples of withdrawals (circular flow of imcome)
net saving
net taxes
import expenditure
Examples of Injections
(circular flow of income)
investment
government expenditure
export expenditure
withdrawal equation
W = S + T + M
withdrawal = net savings + net taxes + import expenditure.
injections equation
J = I + G + X
injections = investment + government expenditure + export expenditure.
Aggregate demand
Total expenditure on domestically produced goods.
Aggregate demand equation
Domestic consumption + injections
AD = Cd + J
the relationship between injections and withdrawals
the links between them
Equilibrium… when J = W
Growth… when J > W
Negative Growth… when J > W
planned injections may not equal planned withdrawals
Clockwise flow of income
the businesses operational cycle of producing goods and paying wages to households
counter-clockwise flow of income
the households’ supply of labour to business to receive income
claimant unemployment
those on unemployment benefits, does not capture the true level of unemployment in the country
standardised unemployment
used by the International Labour Organization (ILO) to measure unemployment across the world
reasons for unemployment
by geographical region
by age
by gender
by ethnic group
Inflows of unemployment
From jobs
* People made redundant
* People sacked
* People temporarily laid off
* People resigning
From outside the labour force
* School/college leavers
* People returning to the
labour force (e.g. after
raising children)
outflows of unemployment
To jobs To outside the
labour force
* People taking new jobs
* People returning to old
jobs who had been
temporarily laid off
To the outside labour force
People who have become disheartened
and give up looking for a job
* People who have reached retirement age
* People who temporarily withdraw from
labour force (e.g. to raise a family)
* People who emigrate
* People who die
Real Wage unemployment
a type of unemployment that occurs when wages are set higher than the equilibrium level. This causes a surplus of labor, which leads to unemployment.
Keynesian Unemployment
unemployment that occurs when there is not enough demand for goods and services. including unemployment caused by lockdown.
he argues using fiscal + monetary policy to settle the business cycle and reduce sizes of peaks and troughs.
Frictional unemployment
a short-term period of unemployment that occurs when people are between jobs
Structural Unemployment
occurs when there are fewer jobs than qualified workers available. It can be caused by changes in technology, economic structure, or demand for certain skills
Seasonal Unemployment
a temporary period of unemployment that happens when demand for labor fluctuates with the seasons. It’s common in industries like construction, tourism, and agriculture.
Real wage equation
Wr = Nominal wage / Price index
Inflation definition
annual percentage increase in price levels
measured with CPI or RPI
GDP deflator
the rate at which prices of all domestically produced goods and services are changing.
