Unit 2.12 - The Market’s Inability to Achieve Equity

All 18 cards in this deck

Every term and definition, free to read. Hit study above to practice them as flashcards.

A leakage from the circular flow, where income is not spent.

Saving

A stock concept that represents the total value of accumulated assets such as property and savings.

Wealth

Charges imposed by the government on income and spending.

Taxation

Domestic products sold to foreign consumers, acting as an injection into the economy.

Exports

Expenditure by firms to upgrade or expand their production capabilities.

Investment

Goods and services purchased from abroad, representing a leakage.

Imports

The income remaining after taxes, reflecting actual purchasing power.

Personal disposable income

The process by which money exits the economy, such as through taxes, saving, or imports.

Withdrawal

The unequal distribution of assets throughout the economy.

Wealth inequality

The uneven distribution of earnings within a community or country.

Income inequality

State the formula: S + T + M (S + T + M)

S + T + M > I + G + X If total leakages (savings, taxation and imports) exceed total injections (investment, government spending and exports), national income and employment will fall, leading to recession and higher inequality.

State the formula: When imports exceed exports, there

M > X When imports exceed exports, there is a net leakage of income from the economy that can reduce GDP and worsen international income disparities.

exports (X)

Exports are goods and services sold to foreign consumers and firms, acting as an injection into the circular flow of income. This process increases the money circulating within the domestic economy, as foreign buyers contribute to local income through their purchases.

imports (M)

Imports are goods and services purchased from abroad, representing a leakage from the circular flow of income. When domestic households and firms spend on imports, this reduces the amount of money circulating within the local economy, impacting overall economic activity.

taxation (T)

Taxation refers to government charges or levies imposed on income and expenditure, which can be direct or indirect. It acts as a withdrawal from the circular flow of income, reducing the amount of money available for households and firms to spend, while also funding government expenditures.

withdrawal (leakage)

A withdrawal from the circular flow of income refers to money leaving the economy, which can occur through savings, taxation, or imports. This reduction in the flow can lead to imbalances between injections and leakages, potentially resulting in income inequalities within the economy.

factor incomes

The various forms of income that households can earn, including wages, rent, interest, and profit. This concept explains how different sources of income contribute to overall earnings and the resulting inequalities in wealth distribution.

household income

A measure of income received by a household, which can indicate living standards. It often reflects the wages, salaries, and other earnings of all members of the household, highlighting inequalities in distribution within the economy.