Lesson 4 - The circular flow of income

Question 1

What is the circular flow of income?

Answer 1

Basic way of understanding how different parts of the economic system fit together.

Question 2

What does the circular flow of income show?

Answer 2

Connections between the different sections of our economic system

Question 3

What does the circular flow of income revolve around?

Answer 3

Flows of goods and services and factors of production between firms and households.

Question 4

How are households involved in the circular flow of income?

Answer 4

They require income from their jobs allowing them to either consume or save

Question 5

What is the role of firms in the circular flow of income?

Answer 5

Businesses meet customer demand through output. They also pay wages to households and make investments to expand.

Question 6

What is the role of the government in the circular flow of income?

Answer 6

Government collects taxes from households and firms.

Question 7

If injections are greater than leakages, what will happen to the economy?

Answer 7

The economy will grow

Question 8

If leakages are greater than injections, what will happen to the economy?

Answer 8

The economy will shrink