2.2 The Five-Sector Circular flow model

Question 1

what does the circular flow of income show

Answer 1

connections between 5 sectors of economy
+
Where injections/leakages occur
+
level of economic activity

Question 2

list 5 sectors of economy

Answer 2

consumers
businesses
financial institutions
government
overseas

Question 3

Injections and leakages help economists calculate changes in the __________

Answer 3

level of economic activity within an economy

Question 4

other name for consumer sector

Answer 4

household sector

Question 5

consumers hold ______ resources

Answer 5

economic

Question 6

list the 4 economic resources

Answer 6

land
labour
capital
enterprise

Question 7

2 sectors in the simple two-sector economic model

Answer 7

consumer sector
firms sector

Question 8

define production

Answer 8

when firms use resources of households to produce goods and services

Question 9

define consumption

Answer 9

when households use their income to buy various goods and services

Question 10

consumers and businesses are ________ on eachother

Answer 10

interdependent

Question 11

why do consumers need businesses

Answer 11

businesses provide:
- income
- goods & services to satisfy needs & wants

Question 12

why do businesses need consumers

Answer 12

businesses would not survive without consumers buying their goods and services

Question 13

letter for consumption

Answer 13

C

Question 14

letter for income

Answer 14

Y

Question 15

income includes:

Answer 15

wages, rent, interest, profit

Question 16

household sector –> firms sector

Answer 16

economic resources,
consumption (C)

Question 17

household sector <– firms sector

Answer 17

goods and services,
income (Y)

Question 18

define financial sector

Answer 18

financial institutions (Eg. Banks) that act as intermediates between savers and borrowers in an economy

Question 19

letter for savings

Answer 19

S

Question 20

letter for investment

Answer 20

I

Question 21

savings: leakage or injection

Answer 21

leakage

Question 22

investment: leakage or injection

Answer 22

injection

Question 23

define government sector

Answer 23

local, state and federal govs

Question 24

two significant roles of gov in circular flow of income

Answer 24

taxation

Government expenditure

Question 25

taxation: leakage or injection

Answer 25

leakage

Question 26

Government expenditure: leakage or injection

Answer 26

injection

Question 27

define taxation

Answer 27

gov collects taxes from individuals and businesses when they earn a profit

Question 28

define government expenditure

Answer 28

when gov spends money raised through taxation - infrastructure - welfare payments - edu - health

Question 29

letter for taxation

Answer 29

T

Question 30

letter for Gov expenditure

Answer 30

G

Question 31

household sector --> financial sector

Answer 31

Savings (S)

Question 32

Financial sector --> firms sector

Answer 32

investment (I)

Question 33

household sector --> government sector

Answer 33

Taxation (T)

Question 34

government sector --> Firms sector

Answer 34

Government expenditure

Question 35

trade consists of _______ and ________

Answer 35

trade consists of IMPORTS and EXPORTS

Question 36

macroeconomics looks at ______

Answer 36

macroeconomics looks at GLOBAL INFLUENCES ON AN ECONOMY

Question 37

Letter for Exports

Answer 37

X

Question 38

Letter for imports

Answer 38

M

Question 39

Household sector --> overseas sector

Answer 39

imports (M)

Question 40

Oversease sector --> firms sector

Answer 40

Exports (X)

Question 41

Imports: leakage or injection

Answer 41

leakage

Question 42

Exports: leakage or injection

Answer 42

injection

Question 43

When injections > leakages,

Answer 43

economic growth occurs, so economy will expand

Question 44

When leakages > injections,

Answer 44

economy will experience economic decline