Circular Flow of Income Flashcards
(17 cards)
What is Income
Income is the flow of money received by a person or economy each year.
What is Wealth
Wealth is the sum, or stock, of a person or economy’s assets.
What are assets
Items that you own.
What is the Circular Flow Equation
National income = national expenditure = national output
What are Factor Incomes
Money paid by firms to households in return for factors of production.
What is Real GDP
Real GDP stands for Real Gross Domestic Product. Real GDP measures an economy’s national output: how many goods and services the economy produces in a year.
What are Leakages/Withdrawals
A leakage (also known as a withdrawal) is when money leaks out of the circular flow.
What are the Types of leakage/withdrawal
Savings
Imports
Taxes
You can remember them as S I T
What are savings
Disposable income that is not spent by households. Savings are a leakage.
What are Imports
Spending on foreign goods and services. Imports are a leakage.
What are taxes
Money paid to the government by consumers, firms and workers. Taxes are a leakage.
What are Injections
An injection is when money is injected into the circular flow.
What are the types of Injections
Government spending
Investment
EXports
You can remember them as G I X
What is government spending
When the government injects money into the economy by spending on schools, teachers, hospitals, doctors etc.
What are exports
When firms exports goods abroad, foreign consumers pay us, so money is injected into our economy.
What is Investment
Banks use our savings to invest back into our firms, injecting money into the circular flow.
What is the circular flow model
Firms buy factors of production, like labour and land, from households. In return, they pay households factor incomes, like wages and rent. Households then spend their factor incomes on firms in exchange for the goods and services!
