LS5 - Circular Flow Of Income

Question 1

National income

Answer 1

Level of total output in an economy
Value of income paid by firms to households in return for land labour and capital

Question 2

National expenditure

Answer 2

Value of spending by households on goods and services

Question 3

National output

Answer 3

Value of the flow of goods and services from firms to households

Question 4

Circular flow of income

Answer 4

Shows how income flows in an economy

Question 5

Measuring gdp

Answer 5

Output = expenditure = income

Question 6

Injections

Answer 6

Spending that doesn’t come from households

1. Investment - spending my firms on capital goods to increase productivity
2. Gov spending - spending by govt on facilities like schools and new roads
3. Exports - spending by foreign countries on goods/services manufactured domestically

Question 7

Leakages/withdrawals

Answer 7

Spending which does not flow from households to firms
1. Savings - money not spent
2. Taxes - money gov takes from households and firms
3. Imports - money spent on goods and services manufactured in foreign countries

Question 8

Leakages vs injections

Answer 8

L>I = economic decline
L<I = economic growth
L=I is macroeconomic equilibrium