Circular Flow of Income and Macroeconomics

Practice flashcards covering the basic concepts of Macroeconomics, Stock vs Flow, and the Circular Flow of Income based on lecture notes.

Macroeconomics

A part of economic theory which studies the behavior of aggregates of the economy as a whole, including National Income, aggregate output, and aggregate consumptions.

Stock

Any quantity measured at a particular point of time, such as a bank balance or the population of India on $31.03.20$.

Flow

Any quantity measured over a particular period of time, which is dynamic in nature and measured in a time dimension, such as cars manufactured during Jan or births during $2023$.

Circular Flow of Income

The cycle of generation of income in the production process, its distribution among factors of production, and its final circulation from households to firms in the form of consumption expenditure on goods and services.

Generation Phase

The phase of the circular flow involving the production of goods and services to generate income.

Distribution Phase

The phase involving the generation of income in terms of wages, rent, interest, and profit.

Disposition Phase

Also known as the Expenditure Phase, it involves expenditure in terms of consumption (daily basis) and investment (such as stocks, shares, or business).

Closed Economy

An economy that comes under our country and consists of the Production Sector, Household Sector, and Government Sector.

Open Economy

An economy containing foreign and worldwide affairs, including the Rest of the World sector.

Real Flow

Also known as Physical Flow, it is the flow of factor services (land, labour) from households to firms and the flow of goods and services from business to households.

Money Flow

Also known as Nominal Flow, it is the flow of money across different sectors, involving the exchange of factor services for factor payments from firms.

Barter System

An exchange system where goods and services are directly traded for other goods and services without the use of money.

Two Sector Economy

The simplest form of a closed economy that assumes the existence of only households and firms, where there are no savings.