Y12 Booklet 1: National Income, Circular Flow of Income, GDP & Policy Objectives Flashcards
What are the 3 ways to calculate the level of economic activity in an economy?
- Output
- Expenditure
- Income
What is the Output method for measuring GDP?
add up value of all goods and services produced by firms
What is the Expenditure method for measuring GDP?
add up value of all goods and services purchased by households
What is the Income method for measuring GDP?
add up income from all goods and services earned by firms
In a closed economy, what must always be true? What is a closed economy?
O = E = Y
an economy with no injections/leakages
What is wealth?
- accumulated assets, which can be used to generate income and have a market value (e.g. a car, a house)
- a “stock variable”
What is income?
- money which is generated/earned/received over time (e.g. wages, interest)
- a “flow variable”
What are the 4 factor incomes, and which factor of production do they apply to?
interest - capital
profits - enterprise
wages - labour
rent - land
What is the Circular Flow of Income Model?
In the Circular Flow of Income Model, what is exchanged for production?
factors of production -> firms
factor incomes -> households
In the Circular Flow of Income Model, what is exchanged for consumption?
goods + services -> households
household expenditure -> firms
What are the 3 leakages in the Circular Flow of Income Model?
- imports
- taxation
- savings
What are the 3 injections in the Circular Flow of Income Model?
- exports
- govt. spending
- investment
What is GDP? What does it measure?
Gross Domestic Product - the combined value of all goods and services produced in a given time (usually 1 year)
National Income
What is a problem with using GDP as a measure of national income?
- doesn’t include unpaid work (e.g. “when a man marries his maid”, volunteering)
- data can not be published instantly, always out of date
- may not include illegal goods
What happens when leakages > injections?
National Income shrinks
What happens when injections > leakages?
National Income grows
Which 2 economic agents are included in the Circular Flow of Income Model?
households + firms
What are the 4 main objectives of government macroeconomic policy?
- (C) stable balance of payments on Current account
- (U) minimise Unemployment
- (P) Price stability
- (S) Sustainable economic growth
What is the current account?
an account of money in and out the country (imports & exports)
What are the 3 more practical objectives of government macroeconomic policy?
- (B) maintain balanced Budget
- (E) achieve greater income Equality
- (E) protect the Environment
What could be a problem with government macroeconomic objectives?
can conflict with each other
e.g. sustainable economic growth & greater income equality
