• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The level of national income.

Extracts from this document...


Outline the five sectors of the economy and explain how a change in the circular flow of income will affect the level of national income, output and employment. The five sectors of an economy can be represented through a model of the circular flow diagram. They are - households, business firms, financial institutions, government and overseas sector. The Australian economy can be divided into these five sectors and is classified as an open economy. The "individual" sector of the economy is concerned with activities that would provide consumers with an opportunity to earn an income and spending money for goods and services. These individuals supply factors of production, such as labour and interprise which is used to produce goods and services to satisfy the needs and wants of consumers. Thus the individuals receive incomes in the form of rent, wages, interest and profit as a reward for supplying resources such as labour and enterprise to firms. Businesses rely on individuals to supply the resources they need and individuals depend on businesses to satisfy the good and services they require as well as to provide an income for them to purchase with. ...read more.


Another form of leakage is taxation. This is obtained by the government by taxing other sectors in the economy. When an individual pays tax this reduces the amount of money they have to spend on goods and services. Similiarly when a government taxes a business it reduces the level of funds available to pay for the resources. This leakage too, would cause a lower level of reduction in economic activity therefore causing income, output and employment opportunities to fall. However, leakages can be balanced out through investments, which is an injection and has the opposite effect of a leakage. Therefore it is recommended to spend on investments, as it would lead to a rise in expenditure, production, employment and income levels in the economy. Government expenditure also represents an injection for two ways. Firstly, when the government spends revenue on collective goods and services it provides an income to government employess and employess of private businesses from which it purchases its goods and services. ...read more.


However, as this occurs consumers will have less income to save, to spend on imports or to have collected as taxes. This will lead to leakages and injections to eventually balance creating equilibrium however at a lower level of income. When the total injections are greater than total leakages. This creates an upturn in the economy as consumers have more income to save, to spend on imports or to have collected as taxes. Therefore leakages ad injections will once again balance itself out to equilibrium at a higher level of income. Therefore, by altering its contributions to leakages and injections, the government has a large degree of influence over the level of economic activity, Therefore, it can be shown that for an economy to benefit, it needs to have a higher national income. This in turn would cause people to have more money in their pockets. This would lead to them to spending more which in turn would create a demand for goods to rise. This causes businesses to increase production, causing them to hire more staff, causing a decrease in unemployment. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. An Empirical Investigation into the Causes and Effects of Liquidity in Emerging

    This offers a very similar set of criteria to EMBI-G for bonds to be included in the index, allowing an exact comparison to be performed. According to the Merrill Lynch website14, the primary objective of this fund is to obtain current income.

  2. Scarcity and Unlimited Wants.

    * The multinational may operate against the interest of the host country. * The multinational may force its overseas branches to buy supplies from the head office. Factors Influencing Location Sometimes firms have to decide where to build a new factory.

  1. Measurement of National Income, Strengths and Weaknesses of National Income Statistics.

    This effect is known as the multiplier effect. The greater the proportion of the extra income that is spent (the Marginal Propensity to Consume), the bigger the multiplier effect will be. National Income Measurement There are at least two or three different ways of calculating these numbers.

  2. The National Debt

    would contain a fiscal cutback in the government of 13 billion and raise taxes in an attempt to pay for government spending, but the House of Representatives rejected his plan. In 1982 and '83, Reagan experienced a 17.2% and 25.7% deficit over the budget which was added to the national debt.

  1. Retailing In India - A Government Policy Perspective

    Consequently, it is likely that in the absence of best practice experienced players, the retail transition will take a long time as players lacking skills and experience are less willing to take risks and will, therefore, take longer to ramp up operations.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    They have a GDP per head of $21,919 also it is the world's largest exporter and second largest importer. As many of the people in Germany earn a great deal of revenue they desire to buy quality, value-for-money products which Sony can supply them.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work