Lesson 41

Question 1

Moral hazard

Answer 1

When one party changes their behaviour due to this asymmetric information causing a cost to the other party

Question 2

The circular flow of income

Answer 2

A model of the economy that shows that the movement of goods and services between households and firms and their corresponding payments in money, together with the supply of factors of production

Question 3

Circular flow of income diagram

Answer 3

Lesson 41 in book

Question 4

Factors of income

Answer 4

wages

rents

interest

profits

Question 5

What are the factors of income merely?

Answer 5

Things that are the reward for the factors of production

e.g. For the factor of production of land

the factor of income is rent

Question 6

Injections

Answer 6

Where money flows into the circular flow

in the form of investment, government spending + exports

Question 7

Leakages

Answer 7

When money flows out of the circular flow in the form of savings, taxes and imports

Question 8

Reward for Land

Answer 8

Rent + interest

Question 9

Reward for Labour

Answer 9

Wages + interest (if they get stock options)

Question 10

Capital

Answer 10

Interest

Question 11

Enterprise

Answer 11

Profits