2.4.1 & 2.4.2 National Income & Injections And Withdrawals (Circular Flow Of Income)

Question 1

See essay

Question 2

The circular flow of income

Question 3

Injections

Answer 3

makes the circular flow of income larger
- Government spending = more income = more AD
- Exports = more AD = add to CFI
- Investments

Question 4

Withdrawals

Answer 4

make the circular flow of income smaller (less money)
- Savings = lower expenditure
- Tax = reduced income = decreased expenditure
- Imports = money goes out

Question 5

National output

Answer 5

national output = national income = national expenditure

Question 6

When injections are greater than withdrawals

Answer 6

• the amount of money in the circular flow increases representing economic growth

Question 7

When injections are less than withdrawals

Answer 7

• the amount of money in the circular flow decreases representing a fall in real GDP

Question 8

Income

Answer 8

• a flow concept (factors of production)
• e.g Wages, rent, interest, dividends, profit

Question 9

Wealth

Answer 9

• a stock concept (accumulation of incomes not spent)

Question 10

Opportunity cost (circular flow of income)

Answer 10

• If income increases are going to have a direct impact on wealth then a decision must be made to forego current consumption in order to enjoy increased welfare in the future
  – that is, the opportunity cost of the increased future welfare is current consumption

Question 11

The rate of VAT (circular flow of income)

Answer 11

increased tax = increased withdrawals = decreased CFI

Question 12

Pound strengthens (circular flow of income)

Answer 12

• imports cheaper = increased imports = increased withdrawals
• Exports dearer = decreased exports = increased withdrawals
• decreased CFI

Question 13

Interest rates are cut (circular flow of income)

Answer 13

• increased investments = increased injections
• decreased savings = increased injections
• increased CFI

Question 14

Consumer confidence decrease (circular flow of income)

Answer 14

• increased savings = decreased injections = decreased CFI