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National income
National income is the total value of any economic activity of the circular flow. It is either all income earned from factors of production or the expenditure of various sectors of the economy.
Leakage
Withdrawal from the income flow. When households and firms save part of their income, it constitutes for a leakage. They may be in the form of savings, tax payments, and imports. Leakages reduce the flow of income.
Injections
An injection refers to an addition of funds into the circular flow of income in an economy. This could include government spending, investments by businesses, or export earnings. Injections increase the total amount of money circulating in an economy, potentially stimulating economic growth.
Circular flow of income
A model that illustrates how money moves through an economy. It shows the interactions between households and firms, where households provide factors of production (labor, land, capital) to firms, and in return, receive wages, rent, and profits. This income is then spent on goods and services produced by firms, creating a continuous flow of money.
Foreign sectors(F)
Involves the transaction in international economic activities like imports(M) and exports(x) of goods and services
Households Sector(H)
Flashcard:
Term: Households Sector (H)
These are the consumers that need goods and services to satisfy their wants and needs. They share their income and supply all the factors of production(land, labor, capital, entrepreneurship).
Firms Sector(F)
these are the producers and they demand the factors of productions to make goods and services from households
Government Sector(G)
Governments impose tax on households and firms to earn a revenue and spend them on public goods and services.
Financial Sector(F)
The financial sector consists of banks, which engage in lending and offering households to save their income.
transfer payment
Transfer payments are payments made by governments that are not in exchange for goods or services and therefore do not increase national output(e.g pensions, child support and unemployment benefits). They are a means of redistributing income from one group of households to another
