we’ll be looking at a model of an economy
DESCRIPTION
We’ll be looking at a model of an economy. This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important. - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/1.jpg)
This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important. We start with something very simple, and gradually build a more detailed and complex model. So, while we get closer to reality, it is still only a model.
This is an economic model that attempts to explain the real world. It simplifies all that goes on in a real economy and just focuses on what is considered important.
We’ll be looking at a model of an economy
This is an economic model that attempts to explain the real world.
![Page 2: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/2.jpg)
the Firm
First, the productive sector employs resources (such as labour) and uses them to create goods and services (output).
![Page 3: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/3.jpg)
Households
Households consume these goods and services and provide Firms with the resources (such as labour) that they require.
![Page 4: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/4.jpg)
Households provide resources to Firms and earn income (such as salaries and wages) in exchange.Firms produce goods and services which they sell to Households.
The activities of Households and Firms are linked.
Households Firms
![Page 5: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/5.jpg)
Households provide resources to Firms and earn income (such as salaries and wages) in exchange.
Firms produce goods and services which they sell to Households.Resources and goods and services flow one wayThese are called Real Flows because they are physical items
Money Flows go in the other direction
Households Firms
![Page 6: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/6.jpg)
This is called the Circular Flow Model.
Households
It is made up of Real Flows and Money Flows.
Firms
![Page 7: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/7.jpg)
Households Firms
This is called the Circular Flow Model.It is made up of Real Flows and Money Flows.
Income
Resources
Goods and Services
Consumer SpendingTask
![Page 8: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/8.jpg)
Income
Resources
Goods and Services
Households and Firms are not the only sectors in the economy. Before expanding the model, we will simplify it by only using money flows from now on.
Expanding the Model
Consumer Spending
Households Firms
![Page 9: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/9.jpg)
The Financial Sector includes banks, insurance companies and other financial institutions.Households save any income not spent with this sectorFirms go to banks to borrow funds for expansion: new factories, new machines or research and development. This is called investment.
So, there are two new money flows, savings and investment.
Savings
Investment
Income
Consumer Spending
Households Firms
FinanceSector
Task
![Page 10: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/10.jpg)
The Government in NZ accounts for over 35% of all economic activity.It collects direct tax from households (PAYE)
as well as indirect taxes from firms (GST, excise taxes...)
Savings
Investment
Income
Consumer Spending
Households Firms
FinanceSector
Taxes Taxes
![Page 11: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/11.jpg)
This taxation revenue is then used to make transfer payments such as:• social welfare benefits to NZ’s most vulnerable citizens,• subsidies to business for merit goods such as medicines,
Savings
Investment
Income
Consumer Spending
Households Firms
FinanceSector
Task
Taxes Taxes
• other goods and services such as police, hospitals, roading...
Government Spending
SubsidiesTransfers
![Page 12: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/12.jpg)
Another sector to add is the Overseas Sector. Firms sell their products to foreign buyers, earning export receipts.A real flow of exports is matched by a money
flow, export receipts.
Exports
Export
Receipts
Savings
Investment
FinanceSector
Income
Consumer Spending
Households FirmsTaxes Taxes
Government Spending
SubsidiesTransfers
![Page 13: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/13.jpg)
Export
Receipts
Firms also import goods and services to use or sell.
is matched by the money flow, import payments.
The real flow of imports
ExportsIm
ports
Import
Paym
ents
Savings
Investment
FinanceSector
Income
Consumer Spending
Households FirmsTaxes Taxes
Government Spending
SubsidiesTransfers
![Page 14: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/14.jpg)
Import
Paym
ents
Export
ReceiptsInvestment
Savings
Consumer Spending
Income
Our new model, showing money flows only, now looks like this.
Imports
FinanceSector
Households FirmsTaxes Taxes
Government Spending
SubsidiesTransfers
![Page 15: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/15.jpg)
Import
Paym
ents
Investment
Income
Our new model, showing money flows only, now looks like this.
Savings
Consumer Spending
Export
Receipts
FinanceSector
Households FirmsTaxes Taxes
Government Spending
SubsidiesTransfersTask
![Page 16: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/16.jpg)
End of slide show, click to exit
![Page 17: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/17.jpg)
Households Firms
Income
Resources
Goods and Services
Consumer Spending
In which flow or sector would you classify the following?
Money spent on a yacht
Timber for the decking
A yacht manufacturer
Payment for timber
Profits from the sale of yachts
A boat builder
Wages paid to a boat builder
Consumer Spending
Resources
Firms
Resources
Income
Income
Income
The buyer of a yacht Households
A yacht Goods/Services
Back
ANSWERS
![Page 18: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/18.jpg)
Savings can be defined asincome not spent
Lee buys a van
LBJ Ltd buys a van
Lee buys shares in LBJ
Lee gets a dividend on his shares
LBJ researches a new product
LBJ uses a share float to expand their factory
Lee receives his salary
Consumer Spending
Investment
Savings
Investment
Income
Income
Investment
Lee deposits money in the bank Savings
Back
Savings
Investment
Finance
Income
Consumer Spending
Households Firms
Investment can be defined as
the creation of capital goodsUsing these definitions, classify the
following into one of the money flows:
ANSWERS
![Page 19: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/19.jpg)
Transfer Payments are a one-way payment with no exchange occuring.
Company taxes
Free doctors visits for under 5s
Road User Charges
Working for Families payment
Tax (from firms)
Subsidy
Tax (from firms)
Transfer Payment
Unemployment benefit Transfer Payment
Back
Savings
Investment
Finance
Income
Consumer Spending
Households Firms
Government spending only refers to spending on goods and services when an exchange of funds for commodities does occur.
Taxes Taxes
Govt Spending
SubsidiesTransfers
Government Spending or Subsidy or Tax or Transfer Payment?
Purchase of new desks for classrooms Government Spending
ANSWERS
![Page 20: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/20.jpg)
The Leeming Family
Noel Leeming Appliances
Noel Leeming goes to work
F&P dish drawers are sold in Namibia
F&P builds a new assembly line
Leigh Leeming buys a new fridge
Leigh’s new fridge is produced in Australia
Household
Firm
Income
Consumption
Investment
Export Receipts
Import Payment
Import
Payments
Export
ReceiptsInvestment
Savings
Consumer Spending
Income
FinanceSector
Households Firms
In which money flow or sector would you classify the following?
Taxes Taxes
Govt Spending
SubsidiesTransfers
ANSWERS
![Page 21: We’ll be looking at a model of an economy](https://reader036.vdocuments.us/reader036/viewer/2022070406/56814214550346895dae21b2/html5/thumbnails/21.jpg)
savin
gs
Copy this chart, then label the flows and sectors using the list below:
• JH Whittaker and Sons Ltd• Payment for imported cocoa beans• Whittakers purchase a new grinder• Chocolate lovers• Westpac Bank• Income from exported peanut slabs• Ghana• Sante Bar purchases• Factory workers wages