Circular Flow

Question 1

Circular flow of income

Answer 1

-is a way to model the economy and allows us derive two conclusions, how we can look at economic growth and how we can measure economic growth

Question 2

Households supply 4 factors of production to firms

Answer 2

-labour
-land
-capital
-enterprise
-firms then use these to make goods and services and households receive factor incomes then this income is spent on those goods and services made by firms, this is how the model is circular

Question 3

Leakages and injections

Answer 3

-income may be spent on other things, savings(S), taxes(T), imports(M) these are called leakages
-other ways expenditure can occur in an economy, investment (I), government spending (G), exports (X) these are known as injections
-

Question 4

Equations and what they mean in an economy

Answer 4

-investment=I , Gov spend (G), exports (X) INJECTIONS
-savings=S taxation=T Imports=M LEAKAGES
-I +G+x >S+T+M =the economy is growing
-I +G+x <S+T+M= the economy is shrinking
-I +G+x =S+T+M = the economy isn’t growing or shrinking

Question 5

GDP methods

Answer 5

-output method- looking at the final value of all goods and services produced by an economy in a year
-income method- by adding up all the factor incomes in a year, all wages and salaries, all profits, all interest, all rent
-total expenditure- add up all consumer expenditure aswell as investment, government spending and net exports
-output=income=expenditure