03 Production_ income and spending in the mixed economy_default_7c11e888

Production

The process of combining various inputs (factors of production) to create an output (goods or services) for sale or consumption.

Income

The reward a person or firm receives for providing a good or service or through making an investment, generated during production.

Spending

One of the three major flows in the economy, comprising consumer spending, investment spending, government spending, and spending by the foreign sector.

Stocks

Variables that can only be measured at a specific point in time and do not have a time dimension (e.g., wealth, population size).

Flows

Variables that can be measured over a period of time, providing moving pictures of the economy (e.g., income, profit, loss).

Factors of Production

Resources used to produce goods and services, divided into human resources (labor and entrepreneurship) and non-human resources (natural resources and capital).

Natural Resources

Gifts of nature, such as land, water, and minerals that are essential for production.

Entrepreneurship

The ability to combine and organize factors of production, taking risks to create products and services.

Technology

Sometimes referred to as the fifth factor of production, it enhances productivity by improving production techniques.

Types of Income

Includes wages (for labor), interest (for capital), rent (for land), and profit (for entrepreneurship).

Households

Individuals or groups living together and making joint economic decisions, consuming goods and services.

Firms

Organizations that employ factors of production to produce goods and services for sale.

Government Sector

The public sector involved in economic activities, including government spending, taxation, and public goods provision.

Foreign Sector

Represents the rest of the world, encompassing international trade interests, exports, and imports.

Circular Flow Diagram

Illustrates the interactions between households and firms, depicting the flow of goods and services and the corresponding flow of income and spending.

Leakages

Withdrawals from the circular flow, including savings, taxes, and imports.

Injections

Additions to the circular flow, including investment spending, government spending, and exports.

Macroeconomic Objectives

Goals that aim to improve and stabilize the economy, such as full employment, economic growth, and controlling inflation.