1.1 Economic Growth

Question 1

What is the circular flow of income?

Answer 1

The circular flow of income is an economic model that illustrates how money moves through an economy, involving households and firms in a continuous cycle of production and consumption.

This model demonstrates the interdependence between different sectors of the economy.

Question 2

What are injections in the circular flow of income?

Answer 2

Injections are additions to the economy that increase the flow of income, including investments, government spending, and exports.

Injections help stimulate economic activity and can counteract the effects of leakages.

Question 3

What are leakages in the circular flow of income?

Answer 3

Leakages are withdrawals from the economy that decrease the flow of income, including savings, taxes, and imports.

Leakages can slow down economic activity if they exceed injections.

Question 4

List the methods of measuring national income.

Answer 4

The methods of measuring national income include:
* Production method
* Income method
* Expenditure method

Each method provides a different perspective on the economy but should yield the same national income figure.

Question 5

What does the production method measure?

Answer 5

The production method measures national income by calculating the total value of goods and services produced in an economy over a specific period.

This method focuses on output and value added at each stage of production.

Question 6

What does the income method measure?

Answer 6

The income method measures national income by summing all incomes earned by factors of production in an economy, including wages, rents, interests, and profits.

This method emphasizes the distribution of income among different sectors.

Question 7

What does the expenditure method measure?

Answer 7

The expenditure method measures national income by calculating total spending on the nation’s final goods and services, including consumption, investment, government spending, and net exports.

This method reflects the demand side of the economy.

Question 8

True or False: Injections always exceed leakages in a healthy economy.

Answer 8

True

A balance between injections and leakages is crucial for sustainable economic growth.

Question 9

Fill in the blank: The circular flow of income includes _______ and leakages.

Answer 9

[injections]

This dynamic relationship is essential for understanding economic equilibrium.