Circular Flow Of Income

Question 1

What is the circular flow

Answer 1

Flows of goods and services and income to factors of production

Question 2

What can be calculated from the circular flow

Answer 2

National income or gross domestic product

Question 3

What are injections into the circular flow

Answer 3

• investment spending
• exports of goods and services
• government spending

Question 4

What are leakages (withdrawals) from the circular flow

Answer 4

• savings
• taxation
• imports (money spent on foreign made goods and services)

Question 5

What are withdrawals

Answer 5

Increases in savings, taxes or imports so reducing the circular flow of income and leading to a multiplied contraction of production (output)

Question 6

When is an economy in equilibrium

Answer 6

When the rate of injections = the rate of withdrawals

Question 7

I rise in net injections will lead to..

Answer 7

An expansion of national output and income

Question 8

A rise in net leakages will bring about ..

Answer 8

A contraction of national output and income

Question 9

When the value of exports > the value of imports

Answer 9

A country is running a trade surplus and this is a net injection into the circular flow

Question 10

When the value of exports < the value of imports

Answer 10

A country is running a trade deficit and this is a net leakage from the circular flow

Question 11

Expansionary fiscal policy and operating with a bigger budget

Answer 11

Government spending is greater than tax revenues- injections > leakages, causing a rise in equilibrium national output

Question 12

Fiscal austerity- seeking to reduce the size of the budget deficit

Answer 12

Leakages from taxation will be rising and/or injections from the government spending will be falling.
Cause a contraction of national output.