2.4.1 National income-Circular flow of income

Question 1

How do households receive factor incomes?

Answer 1

Through earning wages and salaries from jobs and income from their investments

Question 2

What is consumer spending?

Answer 2

When households spend the money on goods and services

Question 3

How are revenues and profits created?

Answer 3

Firms receive payment from consumers for products that firms have made

Question 4

What does the T in the circular flow of income stand for?

Answer 4

Taxes

Question 5

What do the government use the taxes to fund?

Answer 5

Government spending such as education healthcare and defence

Question 6

What does G stand for in the circular flow of income?

Answer 6

Government spending

Question 7

What does M stand for in the circular flow of income?

Answer 7

The UK buying imports from other countries

Question 8

What does X stand for in the circular flow of income?

Answer 8

Overseas businesses and consumers buying UK exports

Question 9

What happens to imports and exports in a circular flow diagram with an external trade sector?

Answer 9

Imports are a leakage and exports are an injection into the circuclar flow

Question 10

What is an external trade sector better known as?

Answer 10

An open economy

Question 11

What does the domestic circular flow of of income involve?

Answer 11

Households
Government
Firms

Question 12

What does the financial sector include?

Answer 12

Commercial banks
Debt
Equity markets

Question 13

What does the financial sector help?

Answer 13

Helps channel savings into productive investments