Tax and Money

CHAPTER 3 – INTERDEPENDENCE BETWEEN MAJOR SECTORS, MARKETS AND FLOWS IN THE MIXED ECONOMY
STUDY UNIT 1

Production, Income and Spending

*Identify the three major flows in the economy
Production – occurs and generates income
Income - earned
Spending – Buy available goods and services

*Distinguish between a flow and a stock
(Box 3-1 Stocks and Flows)
STOCKS
FLOWS
Measured at a particular point in time
NO time dimension
Has a Time dimension – only measured over a period
Water level of dam measured at a particular point in time (at 00:00 on May 1 2007 capacity was 72,64%)
Flow of water into the dam measured over a period (1 May 2007 inflow was measured as 250 cubic metres per second
Stock Takes
Calculation of sales, profit or loss
Still pictures
Moving pictures
Examples
Wealth
Assets
Liabilities
Capital
Population
Balance in savings account
Unemployment
Gold reserves held by SA Res bank
Examples
Income
Profit
Loss
Investment
Number of births and deaths
Saving
Demand for labour
Gold sales, gold production

Stocks and flows are related
Stocks can only change as a result of flows
Prices are ratios between different flows
Ratios between a stock and flow and visa versa have a time dimension
Ratios between two stocks and two flows have no time dimension

“Identify the two basic sets of markets in the economy
Goods Markets – Markets for goods and services
Factor Markets – Markets for factors of production

Interdependence of households and firms

HOUSEHOLDS
FIRMS
All people who live together and who make joint economic decisions or who are subjected to others who make such decisions for them
Unit that employs factors of production to produce goods and services that are sold on the goods market

Every individual is a member of a household
Own factors of production
Sell them on factors markets to firms
In exchange they receive income to purchase consumer goods in the goods market
Goods then