Macro (AD, AS, CFI)

Circular flow of income

model of the economy which shows the flow of goods, services and factors and their payments around the economy

Closed economy

an economy where there is no foreign trade

Income

rent, interest, wages, profits earned from wealth owned by economy actors

Injections - def

in cfi spending which is not generated by households

injections - eg

investments, exports, government spending

National income

the value of the output, expenditure or income of an economy over a period of time

open economy

an economy where there is foreign trade

wealth

a stock of assets which can be used to generate a flow of production or income

withdrawals / leakages - def

in the cfi spending by households which does not flow back to domestic firms

withdrawals / leakages - eg

savings, imports, taxes

Households to firms

Rent FOP, Expenditure on g+s

National output -def

value of the flow of g+s from firms to hosueholds

national output eg

h = Rent fop, F = g+s

national expenditure - def

value of spending by households on g+s

what do households do in cfi

rent out fop, save money, pay tax, import g+s, consume g+ s

what do firms do in cfi

produce/supply g+s, employ fop, invest in capital, import input, export, pay tax

if injections > withdrawals

gdp up

if injections < withdrawals

gdp down

injections = withdrawals

gdp equilibrium 

gdp

sum of value of all final g+s produced

reasons for downward slope of AD

real income effect, wealth effect, interest rate effect

wealth effect 

As AP increases, the purchasing power of households decreases and the AD falls