CH28 National income

Question 1

what does the circular flow of income show?

Answer 1

it shows that the output of an economy can be measured as national output, national expenditure or national income

Question 2

what are injections into the circular flow?

Answer 2

-injections into the circular flow are investment, government spending and exports

Question 3

what are leakages from the circular flow?

Answer 3

leakages from the circular flow are saving, taxation and imports

Question 4

what national income?

Answer 4

it is the value of the output, expenditure or income of an economy over a period of time

Question 5

how many ways are there for national income to be calculated?

Answer 5

three ways

Question 6

What is the circular flow of income?

Answer 6

a model of the economy which shows the flow of goods, services and factors and their payments around the economy

Question 7

what are the 3 ways of measuring the level of economic activity?

Answer 7

-national output (O): this is the value of the flow of goods and services from firms to households.
-national expenditure (E): this is the value of spending by households on goods and services.
-national income (Y): this is the value of income paid by firms to households in return for land, labour and capital.

Question 8

in equilibrium, when there is no tendency to change, what must injections and withdrawals be?

Answer 8

they must be equal.
-when this happens output, expenditure and income flowing around the circular flow remain the same.

Question 9

what happens when injections are greater than withdrawals?

Answer 9

national income will rise to reflect the greater spending

Question 10

what happens when injections are less than withdrawals?

Answer 10

spending will fall