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Economics 2.4.1

Economics- Edexcel 2.4.1

TermDefinition
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
Created by: jessharris
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