2.1 the circular flow of income

national income

value of all goods and services produced in an economy in a given perod of time

national income =

total expendeture = factor incomes = C + I + G + X - M

difference between nominal and real income

real income takes into account inflation

GNI =

GDP + net income form abroad (net primary income)

the difference between GDP and GNI

GNI measures the total income earned by a countries residents regardless of where the income is generated wheras GDP measures the total income within a country’s boarders

full empolyment income

the national income of an economy when there is no output gap

equilibrium income

the national income of an economy when AD is equal to AS

injections into the CFI

value of exports

investment

government spending

withdrawals/leekages from the circular flow of income

value of imports

savings

taxation

closed economy

an economy opperating without imports and exports

investment

spending by firms that keads to an increase in capital stock

savings

income that is not used for immediate consumption

consumption

spending by households on goods and services to satisfy needs and wants

how much of GDP is associated to consumption

60%

how much of GDP is investment (public and private)

17%

how much of GDP is govt spending

45%

how does lower rates of investment impact the economy

LRAS shift in

AD shifts in

lower productivity