The Circular Flow Model Flashcards

Economic Terms and Definitions

• Exports Earnings: Revenue generated by a company or country through selling goods or services to foreign markets.
• Land: Includes all natural resources, encompassing terrestrial and marine environments.
• Labour: Represents the human effort, both physical and mental, contributed by the workforce.
• Capital: Represents resources acquired through investment in physical assets and human expertise.
• Entrepreneurship: Involves individuals who take risks to coordinate land, labour, and capital for production.

The Circular Flow Model

• Definition: A diagram illustrating the monetary transactions within an economy, depicting flows of goods/services and corresponding financial transactions.
• Flows: Comprises two main types: physical flows (goods or labour) and monetary flows (payments for goods and services).

Government and Economic Contributions

• Taxes: Mandatory payments from individuals and businesses to the government, used for public expenditure.
• Government Spending: Encompasses all forms of government expenditure including consumption, investments, and transfer payments.

Trade and Spending

• Import Spendings: Financial resources allocated for acquiring foreign goods to domestic markets.
• Overseas Trade: Engaging in the exchange of goods and services with countries separated by oceans.
• Investment Spending: Expenditure on capital goods that facilitate production, including machinery, land, and infrastructural development.
• Consumption Spending: Refers to purchases made by households for personal needs, including food, clothing, and durable goods.

Financial Aspects

• Final Goods and Services: Products or services acquired directly by consumers, distinct from intermediate goods used in production.
• Rent: Regular payments made by tenants to landlords for property usage.
• Salary: A regularly scheduled payment made by employers to employees, typically expressed as an annual figure.
• Interest: Payment made for borrowing money, calculated at a specified rate.
• Profit: Financial gain realized when income exceeds expenses involved in production or operation.

Economic Participants

• Consumer: Individuals who purchase goods and services for their personal use.
• Producer: Entities (individuals, companies, or nations) engaged in creating or supplying goods for sale.

Economic Concepts

• Leakages: Outflows from the circular flow of income that reduce overall economic activity.
• Injections: Additions to the economy via investments, government spending, or exports that stimulate economic output.

Financial Ecosystem

• Financial Institutions: Organizations that manage financial transactions, including investments, loans, and deposits.
• Government: A structured group responsible for administering a community or nation.