Circular Flow Of Income

Question 1

What do households provide to firms

Answer 1

Labour

Expenditure

Question 2

What do firms provide to households

Answer 2

Goods and services

Income

Question 3

What are leakages

Answer 3

Savings- households put their income into savings which means their expenditure is not going towards the firms

Taxes- money taken from households meaning less money on expenditure and also firms have traces which increases the cost of production

Imports- Money is given to foreign economies which leaves the circular flow of income

Question 4

What is a leakage

Answer 4

Money that flows out of the circular flow of income

Question 5

What is an injection

Answer 5

Money that flows into the circular flow of income

Question 6

What are the problems with measuring economic activity

Answer 6

You can double count

May not record unrecorded income

Question 7

What are the injections

Answer 7

Government spending- spent on goods and services

Investment- obtaining goods that will be used in future production

Exports- Foreigners buy goods and this allows more income to flow into the home economy