Circular Flow Of Income

Question 1

What does the circular flow of income show

Answer 1

Flows of goods and services and incomes to factors of production

Question 2

What can be calculated from the circular flow

Answer 2

National income or GDP

Question 3

3 injections

Answer 3

Investment
Exports
Government spending

Question 4

3 withdrawals

Answer 4

Savings
Taxation
Imports

Question 5

When is an economy in macroeconomic equilibrium

Answer 5

When the rate of injections = the rate of withdrawals

Question 6

What will a rise in net injections lead to

Answer 6

An expansion of national output and income

Question 7

What does a rise in net leakages bring about

Answer 7

A contraction of national output and income

Question 8

Trade surplus

Answer 8

Exports > imports

Question 9

Trade deficit

Answer 9

Exports < imports

Question 10

Expansionary fiscal policy and bigger budget deficit

Answer 10

Government spending is greater than tax revenues (injections > leakages)

Question 11

At a time of fiscal austerity when a government is seeking to reduce the size of the budget deficit, what happens

Answer 11

Leakages from taxation will be rising and / or injections from government spending will be falling (contraction of national output)