2) Circular Flow Of Income Model

Question 0

What is the circular flow of income model

Answer 0

⚫️model of economy
➡️showing flow of income
➡️between households and firms

Question 1

Describe the circular flow of income model

Answer 1

⚫️household
➡️supply firms with labour

⚫️firm
➡️pays wage to worker
➡️providing income for the households

⚫️household
➡️spend income at other firms

⚫️these firms
➡️supply households
➡️with goods and services

Question 2

What happens to all these transactions?

Answer 2

⚫️counted and added up to
➡️national income
➡️output
➡️gdp

Question 3

What does injection mean

Answer 3

⚫️Additions to the circular flow

➡️increases national income

Question 4

What are the examples of injections?

Answer 4

⚫️Spending on exports

⚫️investments

⚫️government spending

Question 5

What does leakages mean?

Answer 5

⚫️Reduction of the circular flow

➡️decreases the national income

Question 6

What are the examples of leakages

Answer 6

⚫️savings

⚫️spending on imports

⚫️taxes

Question 7

What happens if the total value of injection is greater than the total value of leakages

Answer 7

expansion of national income

Question 8

What happens if the leakages are greater than the injection

Answer 8

contraction of national income

Question 9

What factors doe the injections and leakages depend on

Answer 9

⚫️interest rates

⚫️exchange rates

⚫️government economic policy

⚫️consumer and business confidence