Criticisms Of Circular Flow Flashcards
What are the main components of the Circular Flow of Income?
Wages, Rent, Dividends, Profit
These are the forms of income received by households.
What are the factors of production in the Circular Flow model?
Land, Labour, Capital, Enterprise
These are the resources used to produce goods and services.
What do households provide in the Circular Flow model?
Households provide factors of production to firms.
What do firms provide in the Circular Flow model?
Firms provide goods and services to households.
What is consumer expenditure?
Consumer expenditure refers to the total amount spent by households on goods and services.
What are withdrawals or leakages in the Circular Flow model?
Withdrawals or leakages include Tax, Imports, and Savings.
What are injections in the Circular Flow model?
Injections include Exports, Government Spending, and Investment.
What is the focus of the criticisms discussed?
The criticisms are not about the model itself but about how the circular flow works.
What assumption is made about the circular flow model?
It is assumed that the model is correct.
If the circular flow model is 100% correct, what could cause issues in the economy?
Disequilibrium or issues within the economy could arise.
What are the two sides of the circular flow?
Demand Side argues for increasing demand to boost the economy. Supply Side argues for encouraging manufacturers to produce more to boost the economy.
What is the stance of the circular flow of income?
The circular flow of income does not advocate either demand or supply side and is considered ambiguous.
What happens when the government increases spending in the economy?
It causes a rise in aggregate demand for goods and services.
What occurs if supply doesn’t keep up with demand?
Prices will rise, resulting in high levels of inflation.
What happens when the government increases spending in the economy?
It causes a rise in aggregate demand for goods and services.
What is the result if supply doesn’t keep up with demand?
Prices will rise, resulting in high levels of inflation.
What is the Crowding Out Effect?
The Crowding Out Effect occurs when the government increases spending and sometimes borrows from the private sector.
This leads to increased demand and rising interest rates.
What happens to private borrowers during the Crowding Out Effect?
Private borrowers are less likely to borrow from the market due to rising interest rates.
This results in a slowdown of economic growth from the private sector.
What is a criticism of government intervention in the market?
Government interventions can distort market signals, leading to inefficient resource allocation.
How can overprotection of older industries affect innovation?
Overprotection of older industries can stifle innovation.
What is a financial consequence of government support?
Strained government finances from offering support.
What is a risk of overdependence on government?
Reducing corporate and individual resilience.
What does the government sometimes need to do to spend?
The government sometimes needs to borrow money.
What is a consequence of increased public borrowing?
Greater amounts of government debt.
