National Income Accounting

Question 1

What is the circular flow of income?

Answer 1

The Circular Flow of Income – The circular flow of income is that flow of factor incomes from firms to households in return for factor services. This factor income then flows back to firms as payment for goods and services that the households purchase.

Question 2

What are withdrawls (leakages) in the circular flow of income model

Answer 2

Withdrawals [Leakages] – Withdrawals or Leakages refer to that part of the income of an economy that does not pass on [or return] to the circular flow of income.

Question 3

What are Injections

Answer 3

Injections – Injections are additions to the circular flow of income. Therefore, injections increase the flow of income in an economy.

Question 4

What are the different types of injections

Answer 4

Investment ( I)
Government expenditure (G)
Exports (X)

Question 5

What is national income

Answer 5

▪ National Income is a measure of economic activity in an economy over a given period, usually one year. It is the term used to describe all wealthy goods [output] produced in any economy, over a specific period of time.