The Factors Affecting The Household Sector Essay

The Factors Affecting The Household Sector Essay

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Household Sector includes all members of society who consume goods and services. Households provide the Factors of Production businesses require to be successful - for example land, skills, resources, equipment and innovative ideas. In exchange, business pay wages to households.

Because households consume goods and services and provide factors of production, “this means that the other two domestic sectors - business and government - exist to satisfy the wants and needs of the household sector” (AmosWEB Encyclonomic WEBpedia, 2016). Leakages to the GDP occur when households purchase goods and services which are taxed by the Government, or when households consume goods that are imports where the profits are sent to other countries, and also money saved by households isn’t included in the GDP.

Business Sector includes firms who seek profits by producing goods and services. Businesses utilise factors of production and people provided by the household sector to produce goods and services that are sold in the market for which they receive revenue. They pay their workers wages, some of which is used to consume these goods and services. Businesses can have contracts with the Government, for example to build roads and hospitals.

The business sector interacts with the household sector by utilising factors of production and by paying incomes, some of which will be spent on the goods and services produced to satisfy household’s wants and needs. Businesses pay taxes to the Government and receive revenue from Government contracts. Injections are made to the GDP when businesses make capital investments which help boost production and promote economic growth, and when businesses sell products produced in New Zealand to other markets.


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...act on changes yearly, giving governments a more accurate measure of changes in production output over time.

c. Apart from measuring inflation, showing price changes over time and measuring the effectiveness of government economic policies, the CPI can be used to indicate changes in the purchasing power of money, to measure the overall price level and indirectly it could measure the standard of living because it shows the current prices and if people can afford to buy goods and services at that price that could indicate their standard of living (Samuelson & Nordhaus, 1992).

d. Real GDP is more meaningful than nominal GDP. The nominal value creates a false impression as it doesn’t allow for inflation. Although at present inflation is low, it nevertheless should be taken into account to ensure realistic monetary values, particularly when estimating future cash flows.

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