What does the government do?

Maintaining law and order, preventing illegal activity

Ensure the needs of the people are met

Foster positive growth that will positively affect the country in the future.

Look out for the country's future potential and concerning other countries.

Preserve traditions and culture

Regulating the economy

Promoting competition

Protecting consumers

Setting monetary and fiscal policies.

Creating subsidies and taxing

Providing social safety nets (poor, elderly, and disabled)

Welfare

Unemployment benefits

Social security

Representing the nation

Ensure everyone has equal opportunities

Types of governments

Pure planned country - Mixed Economy - Pure free market

Communism→Socialism→Capitalism→Pure Competition

Fiscal policy-Refers to the use of government spending and taxation

Monetary policy-Rules central banks follow to allow sustainable economic growth, by monitoring the overall supply of money

Equity can be promoted by the provision of public goods, and more developed countries have a solid social safety net.

Currently, countries are aiming to reduce their waste from production and consumption to improve sustainability.

Governments typically intervene in markets to protect or help consumers or influence business behaviour by changing policies.

Through trade and by working together with other countries, they become more interdependent. Institutions like the United Nations and the European Union are examples of them working towards the same goal(s).

Circular economy

Leakages

Taxes paid to the government

Savings that aren't spent

Imports, goods, and services bought from other countries

Injections

Government spending, on public goods and services

Investments, money from outside the country

Exports, money from outside the country

The two markets shown are the resource and product markets

Resource (households to businesses) : labour, land, capital, and enterprise

Products (businesses to households) : paper, clothes, food, and houses

Questions 2

Households buy products and firms buy labour, land etc

Leakages are ways that cause the economy to lose money because people save money, pay taxes and buy imports money goes into other countries instead of the firms.

A closed economy has households that don't spend money on anything other than firms. An open economy spends money on firms but also leakages such as financial markets, other countries, and the government. Making them lose money but also creating a better standard of living in the long run as it allows them to expand as that same money can be used for investment, government spending, and spending on exports.

When leakages are larger than the injections the economy goes down as they're losing money, and vice versa the economy becomes bigger as they are creating more money than they are losing

With households and firms, then the connections in between, and then the leakages and injections above and below.

GDP- gross domestic products

The market value of all finished and capital goods and services within a country in a year

Intermediate goods: a good that is used for another good and will be sold again

Finished goods: won't be sold again as a part of another good.

Capital goods: Used to create more goods (tractor)

To count in the GDP it must be produced in the country, if the USA makes a computer for France it is contributing to the USA’s GDP.

National spending approach: Splitting GDP into Consumption, Investments, Government purchases (only directly spent on goods and services) and exports. Then they remove imports.

GDI: Factor income approach: Income, Capital interest, Rent and Profit.

Government purchases

Consumption

Investment

Consumption

Doesn't affect GDP

TEST

Role of government

Economic systems

Circular flow

Learn how to draw

Injections and leaks

GDP

Consumer spending + Business investments (Capital) + Government spending + Net exports (exports-import)

Economic Growth

The increase in market value of goods and services produced by an economy over time. Typically measured in real GDP.