The Circular Flow Of Income Flashcards
(16 cards)
All goods and services make up what?
The national output
The value of spending is what?
The national expenditure
The money paid to households by firms is what?
The national income
Equation for circular flow of income?
National output=National income=National expenditure
What is an injection?
Come in the form of exports, investment and government spending - go to firms
What is a withdrawal?
Come in the form of imports, savings and taxes - made by households or firms
When is the economy in equilibrium?
When withdrawals and injections are equal
What happens if injections are greater than withdrawals?
Means expenditure is greater than output, so firms will increase this - national output, income and expenditure will all increase
What if withdrawals are greater than injections?
Means that output is greater than expenditure, so firms will reduce output - national output, income and expenditure will decrease
What effect do injections have on the circular flow?
Multiplier effect
When an injection occurs what happens? (multiplier)
The actual change in national income is greater than the initial injection
What does the size of the Multiplier depend on?
The rate at which money flows out of the economy- the bigger the leakages the quicker the money will flow out, therefore the multiplier will be smaller
If lots of money is spent on imports (or used as savings or tax) what will this mean for the multiplier?
It will be quite small because the injection will quickly leak out of the circular flow
What is meant by wealth?
The total value of assets owned by individuals or firms - eg. savings, physical items, money, houses, cars
What is meant by Income?
A flow of money received regularly, typically wages.
What is the correlation between income and wealth?
Can typically be said someone with a high income will have high wealth as they are able to purchase more expensive assets
