2.1 the circular flow of income

Question 1

what does national income measure

Answer 1

the flow of new output produced by an economy in a particular period.

Question 2

what’s the difference between nominal and real income

Answer 2

nominal is measured in value terms, it has not been adjusted for inflation, which real income is nominal income that has been adjusted for inflation as its measured in quantity terms

Question 3

how can national income be an indicator of economic performance

Answer 3

if national income is rising, so is the economy

Question 4

what is income equal to, and what do they have in common

Answer 4

income = output = expenditure

they all measure floes of new output

Question 5

who are the basic components in the circular flow of income

Answer 5

households

firms

Question 6

explain the circular flow of income

Answer 6

households give firms labour land and capital and consumption in return for income and goods

Question 7

what are withdrawals/leakages from the circular flow of income

Answer 7

flows of money leaving the circular flow of income

Question 8

examples of withdrawals/leakages

Answer 8

savings
taxes
imports

Question 9

what are injections

Answer 9

flows of money into the circular flow of income

Question 10

examples of injections

Answer 10

exports
investment
government spending

Question 11

when is the national economy in equilibrium

Answer 11

when injections = withdrawals

Question 12

what happens when injections exceed withdrawals

Answer 12

circular flow of income will expand and national income will rise

Question 13

what happens when withdrawals exceed injections

Answer 13

circular flow of income will shrink and national income will fall