2.2.1 The circular fow of income

Question 1

national income definition

Answer 1

income of economy earned by all workers + businesses over a period of time

Question 2

NI expenditure method

Answer 2

= C + I + G + (X-M)

Question 3

NI income method

Answer 3

= all incomes earned over a period of time
= wages, salaries, rent, interest, profits

Question 4

NI Output method

Answer 4

= total value of all output produced for a period of time in each sector of economy.

Question 5

3 method of NI comparison

Answer 5

should be equal
national income = national expenditure = national output

Question 6

real national income vs nominal national income

Answer 6

• nominal NI = NI unadjusted for changes in prices
• real NI = removes effect of price changes from value of NI

Question 7

Real NI as economic indicator:

Answer 7

Real NI ≠ real GDP as some NI comes from UK citizens but not earned in UK (not included in real GDP)
GNI (gross national income) = includes incomes from overseas assets.

Question 8

Uses of real NI

Answer 8

• measure of how successful econ is
• shows how well off population is
• allows gov to estimate how much can be collected in taxation.

Question 9

simple circular flow of income model

Answer 9

Firms → Households = incomes + goods and services
Households → Firms = consumption + factors of production

Question 10

2 sector model of circular flow

Answer 10

Investment = → Firms
Firms → Households = Income
Households → Firms = Consumption
Savings = ← house
* Allows for injections and withdrawls from curcular flow

Question 11

Complex circular flow model

Answer 11

Firms ← = Investment, gov expenditure, exports
Household → Firms = consumption
Firms → Households = income
Households → = savings, taxation, imports

Question 12

circular flow equilibrum

Answer 12

injections = withdrawals
I > W = NI increases
I < W = NI decreases