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The Circular Flow Flashcards

(24 cards)

1
Q

What is the Robinson Crusoe economy

A

the simplest version of the circular flow model (coconuts)

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2
Q

what are the 2 types of activities that describe the entire economy

A

production and consumption

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3
Q

______ are the producers, _______ are the consumers

A

firms, households

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4
Q

Firms pay income to households (the net amount of income is called ________, denoted by Y); households pay money to consume goods (the net amount is called _______, denoted by C)

A

aggregate income, consumption

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5
Q

The circular flow model assumes that savings are all kept in the ___________ (banks, stocks, bonds, insurance, etc.)

A

financial markets

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6
Q

there is more savings than borrowing, so there is a _________ from households into the financial markets

A

net flow of savings

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7
Q

Firms also borrow money from the financial markets, in order to make __________.

A

investments

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8
Q

what are investments

A

the purchase of capital factors (ex. property, equipment) to be used to produce goods and services

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9
Q

what are private savings

A

The total amount of savings by households and firms

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10
Q

Y = C + PS

A

income to households equals the sum of consumption and private savings

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11
Q

Y = C + I

A

income to households equals the sum of consumption and investments

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12
Q

what formula shows proves that savings are used for investment

A

I = PS

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13
Q

Government collects _______ from households, denoted by T

A

taxes

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14
Q

what factor is denoted by G

A

Government purchases

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15
Q

Y = C + PS + T

A

income to households equals the sum of consumption, private savings, and taxes

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16
Q

income spent by the government

Y = C + I + G

A

income to banks equals the sum of consumption, investments, and government purchases

17
Q

what is T – G

A

the government’s net savings (the difference between money collected and spent)

18
Q

what are national savings?

A

PS + (T – G)

the sum of private and government savings, denoted by S

19
Q

when government does not collect enough taxes to pay for all of its spending it must ________________.

A

borrow from the financial markets

20
Q

When there is a ___________, the government actually saves in the financial markets

A

government surplus

21
Q

what is X

A

net exports, or Exports – Imports

22
Q

Y = C + I + G + X

A

income to banks equals the sum of consumption, investments, government purchases, and net exports

23
Q

National savings is the sum of

A

government savings and private savings

24
Q

S = I + X

A

national savings is equal to the sum of investments and net exports