Topic Three, Part 7 - Economic Factors Flashcards
What is the economy?
The behaviour and interactions of businesses, individuals and the government
What is economic activity?
The level of production and goods and services within a country. Measure by GDP
What is GDP?
The total value of everything produced by the economy
What is real terms GDP?
GDP is adjusted for inflation, without adjustment GDP appears to rise even though its the same
What does rising GDP mean?
Likely to mean people have jobs, money to spend and government gain increased tax revenue
What is circular flow?
Individuals make money for business employment. They then spend that money on businesses
What is leaking and injections in the system?
Money being added and taken from the system. The government and Bank of England try balance this.
Examples of an Injection?
- Investment
- Government spending
- exports
Examples of leakages?
- Taxes
- Savings
- Imports
What happens if leakages are greater than injections?
- Demand decreases
- Businesses will lay off employees
- Investments postponed
What is taxation to the circular flow system?
Tax is a leakage, it removes households money. The government is an injection and receives tax money
What is direct taxation?
Imposed directly on households income?
What are examples of direct taxation?
national insurance, Income and council tax for households. Corporation tax, national insurance and business rates for firms
What is indirect taxation?
Imposed when consumption/spending takes place
Examples of indirect taxation?
VAT and excise duties
