econ

• What is the circular flow model? A model that shows the flows of income spending goods and factors of production between households and firms.The 2 sector model includes only households and firms.The 5 sector model includes households firms government financial sector and the foreign sector.
• What are the 4 flows between firms and households in the circular flow model? ""
• What does the circular flow model conclude about national income national expenditure and national output? National income- the total income (wages rent interest & profit) earned in an economyNational expenditure- the total spending by households on goods and servicesNational output- the total value of goods and services produced by firms in an economyAccording to the circular flow:National income=National expenditure=National outputAs all 3 are equivalent often the term national income is used for all three. Therefore a common defintion of national income is the total value of the output expenditure and income in any economy over a period of time.
• What is the difference between income and wealth? Income refers to flows of money to households in the forms of wages interest rent and profit.Wealth refers to a stock of assets that have a financial value. E.g. savings shares in companies or property.Income is a flow concept. This means it always needs to be measured over a period of time e.g. income per hour or per year.Wealth is a stock concept. This means that it is measured at a specific point in time.
• What are the injections into the circular flow? Exports government spending and investment
• What are the withdrawals (AKA leakages) from the circular flow? Imports taxation and saving
• What happens when injections> withdrawals? More money is entering the circular flow than is leaving and therefore national income & GDP increase.
• What happens when withdrawals>injections? More money is leaving the circular flow than is entering and therefore national income and GDP decrease.
• What is economic growth? Economic growth- a rise in real GDP which can be actual growth or potential growth.GDP(Gross Domestic Product)- the total value of goods and services produced in an economy in a year.
• How is GDP measured? According to the 2 sector circular flow model:National income= National expenditure= National outputTherefore there are 3 methods for measuring GDP1)Output method (measuring the final value of all goods and services produced in th economy)2)Expenditure method (measuring the total spending in the economy C+I+G+(X-M)3)Income method (measuring the total income earned in the economy. Income includes wages rent interest and profits).
• Why measure the value of output not the volume (quantity) of output? -Measuring the quantity or volume of output would make it difficult to compare econonmies. (E.G. if economy A produced 1000 TVs and economy B produced 1000000 pineapples then economy B has a larger quantity of output.-For this reason national output is measured using values. (E.G. if the 1000 TVs produced by economy A sells for £1m and the 1000000 pineapples produced by economy B sell for £0.8m then economy A is said to have a higher output.
• What is the difference between real and nominal GDP? nominal GDP: the total values of goods and services produced in an economy in a year (GDP) measured at current prices and therefore not adjusted for inflation.real GDP: the total value of goods and services produced in an economy in a year (GDP) measured at constant prices and therefore adjusted for inflation.
• Define inflation A sustained increase in the average price level
• Why do economists prefer to use real GDP to measure output? Nominal GDP can increase for 2 reasons:1) A rise in the price level2) A rise in outputIn contrast real GDP will only increase if the value of output rises.As economists use GDP to measure output real GDP is a better measure.
• How do you calculate real GDP? rGDP=(Nominal GDP/price index for that year) x 100
• What is meant by GDP per capita? GDP per capita= GDP/populationGDP per capita accounts for population size and therefore is often used as a measure of living standards.
• What is meant by GNI (Gross national income) and GNP (Gross national product? ""
• What is meant by purchasing power parity (PPP)? ""
• What are GDP per capita numbers often given using exchange rates? ""
• How can GDP per capita be used to measure living standards? ""
• What are the limitations of using GDP per capita to measure living standards? ""
• Why is it a problem that GDP doesn't take into account improving quality of goods? ""
• Why is it a problem that GDP doesn't include the informal economy? ""
• Why is it a problem that GDP doesn't take into account unpaid work? ""
• Why does GDP per capita give less accurate indicaton of livining standards if inequality is high? ""
• Why is it a problem that GDP doesn't account for negative externalities? ""
• Why is it a problem that GDP doesn't account for working hours or stress levels? ""
• What is meant by national happiness? ""
• What is the Easterlin Paradox? ""
• What is aggregate demand? ""
• What are the components of AD? ""
• Why does the AD curve slope downwards? ""
• What is the difference between a movement along AD and a shift in AD? ""
• What is consumer expenditure (C)? ""
• What are the factors that affect consumer expenditure? ""
• How do changes in consumer confidence affect C? ""
• How do changes in interest rates affect C? ""
• How do changes in disposable income affect C? ""
• What is the difference between net and gross investment? ""
• What is investment? ""