Circular flow of economy and business cycle

Question 1

Stakeholders in a circular flow of economy

Answer 1

Households, Firms, Government + financial institutions, world markets

Question 2

World market leakage

Answer 2

import (less money in own economy)

Question 3

World market injection

Answer 3

export (more money in own economy)

Question 4

Government leakage

Answer 4

taxation (less money for firms and households to spend)

Question 5

Government injection

Answer 5

government spending (subsidies etc.) (more money for businesses and households to spend)

Question 6

Financial institutions leakage

Answer 6

Household savings (money not moving in economy)

Question 7

Financial institutions injection

Answer 7

loans (more money moving in economy)

Question 8

Business cycle phases (4)

Answer 8

1. Recovery (growing: production, profits, employment, output GDP) 2. Boom (rapid growth of prices and inflation 3. Recession (less: money spent, jobs) (expansionary fiscal policy) 4. Trough (no jobs, banks shut down) (low price rates and good exchange rate will raise economy)