LU1 Chapter 3
LO1: Identify the 3 major flows in the economy
LO2: Distinguish between a stock variable and a flow variable
LO3: The 4 main spending entities and the financial sector:
1. Households and Firms
2. Government
3. Foreign Sector
4. Financial sector
LO4: Identify the various injections and leakages from the circular flow of income and
spending
LO1: Identify the 3 major flows in the economy
Microeconomics = When you are examining individual parts of an economy
Macroeconomics = When you are dealing with the economy as a whole
In an economy there is a high degree of interdependence
This simple diagram of production –income – spending shows the major flow in the
economy
LO2: Distinguish between a stock variable and a flow variable
Stock variable: Has no time dimension and can only be measured at a specific
moment
e.g. the world population
Flow variable: Has a time dimension and can only be measured over a period of time
e.g. the number of babies born in a year
, LO3: The 4 main spending entities and the financial sector:
1. Households and Firms
2. Government
3. Foreign Sector
4. Financial sector
4 main factors of production
Human Resources: Labour and Entrepreneurship
Non-Human Resources: Natural Resources and Capital
Primary Resources: Natural Resources and Labour
Secondary Resources: Capital and Entrepreneurship
Sometimes a 5th is added: Technology
NB! Money is not a factor of production!
Money is important, but it is not a factor of production
Goods and services cannot be produced with money
Money can buy the factors of production that is needed to produce goods and
services, but the money itself cannot do anything
Remuneration of the factors of production i.e. income:
Natural Resources = Rent
Labour = Wages and Salaries
Capital = Interest
Entrepreneurship = Profit
4 main spending entities:
Households
Firms
Government
Foreign Sector
LO1: Identify the 3 major flows in the economy
LO2: Distinguish between a stock variable and a flow variable
LO3: The 4 main spending entities and the financial sector:
1. Households and Firms
2. Government
3. Foreign Sector
4. Financial sector
LO4: Identify the various injections and leakages from the circular flow of income and
spending
LO1: Identify the 3 major flows in the economy
Microeconomics = When you are examining individual parts of an economy
Macroeconomics = When you are dealing with the economy as a whole
In an economy there is a high degree of interdependence
This simple diagram of production –income – spending shows the major flow in the
economy
LO2: Distinguish between a stock variable and a flow variable
Stock variable: Has no time dimension and can only be measured at a specific
moment
e.g. the world population
Flow variable: Has a time dimension and can only be measured over a period of time
e.g. the number of babies born in a year
, LO3: The 4 main spending entities and the financial sector:
1. Households and Firms
2. Government
3. Foreign Sector
4. Financial sector
4 main factors of production
Human Resources: Labour and Entrepreneurship
Non-Human Resources: Natural Resources and Capital
Primary Resources: Natural Resources and Labour
Secondary Resources: Capital and Entrepreneurship
Sometimes a 5th is added: Technology
NB! Money is not a factor of production!
Money is important, but it is not a factor of production
Goods and services cannot be produced with money
Money can buy the factors of production that is needed to produce goods and
services, but the money itself cannot do anything
Remuneration of the factors of production i.e. income:
Natural Resources = Rent
Labour = Wages and Salaries
Capital = Interest
Entrepreneurship = Profit
4 main spending entities:
Households
Firms
Government
Foreign Sector
