Circular Flow Of income

• What do firms and households do in an economy?

  They interact and exchange resources

  
• What do households supply to firms?

  Factors of production like labour and capital
• What do households receive in return for supplying factors of production?

  Wages and dividends
• What do firms supply to households?

  Goods and services
• How do consumers pay firms?

  By spending money on goods and services
• What does the circular flow of income represent?

  The circulation of spending and income in the economy
• What happens when income is saved?

  It is removed from the circular flow
• What are taxes considered in the circular flow of income?

  A withdrawal of income
• What are government spending and welfare payments in the circular flow?

  Injections into the economy
• How does international trade fit into the circular flow of income?

  Exports are injections, imports are withdrawals
• What is the effect of exports on the economy?

  They are an injection into the economy
• What happens when goods are imported?

  Money leaves the economy
• When does the economy reach equilibrium?

  When withdrawals equal injections
• What is the relationship between income, output, and expenditure?

  They are equal in the circular flow
• How is wealth defined?

  As a stock of assets
• What is wealth inequality?

  The unequal distribution of assets
• What is income?

  Money received on a regular basis
• What does income inequality refer to?

  Uneven distribution of income across a nation
• What constitutes an injection into the circular flow of income?

  Money entering the economy through various means
• What constitutes a withdrawal from the circular flow of income?

  Money leaving the economy
• What is the relationship between savings and investment in an economy?

  They are equal in amount
• What is the effect of net injections into the economy?

  Expansion of national output occurs
• What happens with net withdrawals from the economy?

  Production contracts and output decreases