National Income

Question 1

Circular Flow of Income

Answer 1

National income (total factor payments) + National Output (Value of G&S produced) + National expenditure (Total value of spending on G&S)

Question 2

Circular Flow of Income DiagramU

Answer 2

U

Question 3

Issues of the Circular Flow of Income

Answer 3

It states that national income should never change, as all household income is passed onto firms as spending, then back to consumers as income

This is not accurate, because it is assuming that: there is no public sector, there is no saving, the economy is closed (no foreign trading)