1.1 Circular flow of income

Question 1

Define an injection to the circular flow of income

Answer 1

where money flows into the circular flow in the form of Investment by firms (I), Government spending (G) and Exports (X)

Question 2

Define a leakage from the circular flow of income

Answer 2

where money flows out of the circular flow in the form of Household savings (S), Taxation (T) and Imports (M)

Question 3

Define Gross Domestic Product (GDP)

Answer 3

The total value of all goods and services produced in an economy in a given period of time

Question 4

Difference between real and nominal GDP

Answer 4

Real GDP is adjusted for inflation, nominal GDP isn’t