2.4.1: National Income

Question 1

What is the circular flow of income?

Answer 1

• A model of the economy which shows how money moves through society; how money moves between households and firms

Question 2

Relationship between households and firms

Answer 2

• Firms give households rent, wages, interest and profit
• In return, households give firms land, labour and capital

Question 3

Relationship between households and firms again

Answer 3

• Firms give households goods and services
• Households give firms expenditure on goods and services

Question 4

What is income?

Answer 4

• Income is a flow in the economy
  -( earned overtime from employment or income generated of wealth like renting out a house)

Question 5

What is wealth?

Answer 5

• Wealth is a ‘stock’ concept, referring to the value of assets that can be used to generate income

Question 6

What is national output (O)?

Answer 6

• The value of the flow of goods and services from firms to households.

Question 7

What is national expenditure (E)?

Answer 7

• The value of spending by households on goods and services

Question 8

What is national income (Y)?

Answer 8

• The value of income paid by firms to households in return for land, labour and capital