Circular Flow of Income

1
Circular Flow of Income

• Quick Quiz

2
What are the 3 injections to an economy?

• Investment
• Government spending
• Exports

3
What do financial markets do?

• Accept savings from households
• Offer this cash to businesses as investments
  loans
• Charge businesses interest for loans
• Give savers interest in return for their
• The difference between interest charged and
  interest given banks profit!

4
What are the 3 ways of measuring NI?

• National Income all incomes from FoP are added
• National Product all g s produced
• National Expenditure (AD) all expenditure on
  output is added.

5
Whats the difference between GDP GNP?

• GNP GDP Net property income from abroad
• NPIA is the net balance of interest, profits and
  dividends (IPD) coming into the UK from UK assets
  owned overseas matched against the flow of
  profits and other income from foreign owned
  assets located within the UK.

6
Is the UKs GDP higher or lower than GNP?

• GDP is lower than GNP in UK

7
How can GDP be higher than GNP?

• Where net recipients of overseas investment is
  negative
• i.e. foreign businesses located in the economy
  generate more income than that economies
  businesses located abroad.

8
Whats the difference between nominal and real?

• Nominal is current prices
• Real takes into account inflation (subtracts
  increases in prices)