eco ch 5.3 and 5.4 Flashcards
(18 cards)
the three sector circular flow model
a simple diagram that shows the 3 key economic parts making up a mixed economy
three sectors
households - consumers
business
government- includes the activities and decisions of federal state and local authorities
flow 1
Households make resources (land, labour, capital)
available to Business
eg household rents land to business
flow 2
Business pays incomes to those Households
eg salary for labour
flow 2a
households pay taxes to government
flow 3
Households and governments spend their
income on goods and services
flow 4
Business provides goods and services to those
Households and Government
boom expansion
Inflation (price rises) is high
Unemployment is low
Economic/GDP growth is high
Recession/contraction
Inflation (price rises) is low
Unemployment is high
Economic/GDP growth is low
flows are higher in a _________ phase then in the ________ phase
the size of the flows vary – they are higher/bigger in a
boom/expansion phase than in the recession/contraction phase
In all economies, the main purpose of economic activity is to
help satisfy society’s
many needs and wants
living standards
a society’s general level of well-being
2 categories of living standards
Material living standards – measured by individuals access to goods and services
Non-material living standards – measured by the impact that non-material factors have on an individual’s quality of life.
When the pace of economic activity gets faster/stronger and rises more quickly, this
strengthens
material living standards.
How do higher levels of economic activity impact on
non-material living standards (NMLS)? POSITIVES
Most aspects of non-material welfare also benefit from higher levels of economic activity. For example,
when production is expanding, the unemployment rate falls while incomes rise. reducing things like stress and anxiety, crime rates
How do higher levels of economic activity impact on
non-material living standards (NMLS)? NEGATIVES
However, environmental outcomes are likely to suffer because of increased pollution, accelerated climate
change and the faster depletion of non-renewable resources.
Also, stress levels might rise and leisure time might fall because people are working longer hours and
spending less time relaxing with family/friends
How do lower levels of economic activity impact on
non-material living standards (NMLS)? NEGATIVES
Most aspects of non-material welfare also decline from lower levels of economic activity. For example,
when production is falling, the unemployment rate rises while incomes fall. Typically, this helps to
increase stress and social isolation
increase crime rates
worsen mental and physical health
worsen the quality of relationships
How do lower levels of economic activity impact on
non-material living standards (NMLS)? POSITIVES
However, environmental outcomes are likely to improve because of reduced pollution, slower climate
change and the slower depletion of non-renewable resources.
Also, stress levels might fall and leisure time might rise because people are working shorter hours and
spending more time relaxing with family/friends
