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Economics 2.4.1
Economics- Edexcel 2.4.1
| Term | Definition |
|---|---|
| households in the circular flow of income | receive factor incomes through earning wages and salaries from jobs and income from investments, buy goods and services supplied by firms |
| businesses in the circular flow of income | hire land, labour & capital inputs when making products for which they pay wages and rent, firms receive payments from consumers |
| governments in the circular flow of income | collect taxes to fund spending on public services(government purchases to firms and social transfers to households |
| circular flow of income in closed economy with no government sector | only leakage is saving and only injection is investment, so is a simple two-sector circular flow of income model |
| three-sector circular flow includes | government sector, households, firms |
| circular flow of income with an external trade sector | imports are also a leakage and exports are also an injection |
| circular flow with financial sector | financial sector helps channel savings into funding productive investment |
| income | flow of money going to factors of production |
| wealth | value of a stock of assets owned by someone or society as a whole |
| examples of income | wages/salaries, rental income from property, interest from savings, profits flowing to shareholders |
| original income | income from jobs, private pensions & interest from savings |
| gross income | original income + cash benefits |
| disposable income | gross income minus direct taxes |
| post-tax income | disposable income minus indirect taxes |
| nominal income | measures income at current prices |
| real income | measures the true purchasing power of someone’s income adjusted for inflation(measured at constant prices) |
| mean income | average income per person across a population |
| median income | income of middle household if all are ranked from lowest income to highest |
| examples of wealth | savings in bank accounts/ownership of property/shares or stocks in businesses/wealth held in occupational pension schemes |
| Gini coefficient | measure of income inequality that condenses the entire income distribution for a country into a single number between 0 and 100(higher=more income inequality) |
| Palma ratio | ratio of the income of richest 10% of households to the income of the poorest 40% of households |
| S80/S20 ratio | ratio of total income received by the richest and poorest 20% of people |
| P90/P10 | ratio of incomes of the person at the 90th percentile and person at 10th percentile |
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jessharris
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