Macro 2- Circular flow of income and GDP

• What is an Economic agent? An individual or company that influences an economy by producing, selling or buying goods and services or investing money
• What are the three economics agents? Government Firms Households
• Government Generate revenue to provide an essential economic framework Maximise social welfare Incentives: votes
• Firms Convert factors of production into goods and services Maximise profits Incentive: Cost changes
• Households To supply factors of production and purchase goods and services maximise social satisfaction incentive: price changes
• National income Income of an economy earned by all workers and businesses
• Real national income Measures nation income after removing the effect of price changes from its value
• Uses of national income

  How successful the economy is

  Shows how well off the population is

  Allows government to measure how much can be collected in taxation
• Factors that impact economic growth Amount of money spent on goods and services Total value of good and services produced
• Difference between nominal and real GDP Nominal includes price increase in income and expenditure whereas real GDP is adjusted to account for inflation
• Circular flow of income The connection between national income, output and expenditure
• Withdrawl Money leaving the circular flow of income
• Injection Money entering the circular flow of income
• What are the 3 withdrawls? Savings Taxation Imports
• What are the three injections? Investments Government spending Exports
• What causes a change in savings and investment? A change in interest rates
• What causes a change in taxation? Consumer income
• What causes a change in government spending? Economic climate
• What causes a change in Exports? Demand
• What causes a change in imports? Consumer income
• What are the 5 economic agents in the circular flow of income? Households Fimrs Financial sectors Government spending Overseas sector