Part 1 - Intro to Economics Flashcards
Circular Flow of income, markets, multiplier effect, income and wealth (15 cards)
What is the circular flow of income?
Way of modelling economy
Who are the two main economic agents?
Households and Firms
What do households provide to firms?
Factors of production and consumer expenditure
What do firms provide to households?
Factor incomes (e.g wages) ; goods and services
Examples of withdrawals (and letter)
Savings (S) , Taxation (T) , Imports (M)
Examples of Injections (and letter)
Investment (I) , Government spending (G) , Exports (X)
What is FDI?
It is an investment from a party in one country into a business or corporation in another country
What is Marginal Propensity to Consume (MPC)?
Percentage of each additional pound earned that will be spent on domestic goods and services
What is the multiplier effect?
The Keynesian idea that an injection into the circular flow of income will create a greater increase in demand than the original injection
What affects the size of the multiplier effect?
How much people save/spend, Tax rates, if people buy imported or domestically produced goods, if profits from exports are invested domestically or abroad
What is the multiplier formula?
1/(1-MPC) OR MPW (MPS+MPT+MPM)
What is income?
A flow concept, the amount of earnings during a period
What is wealth?
A stock of assets
What are the economic objectives?
Sustainable economic growth
Low and stable inflation
Low unemployment
Balance of current account payments
What is a budget deficit?
When government spending exceeds tax revenue in a year
