National income and Economic growth

Question 1

what is meant by the circular flow of income?

Answer 1

the circular flow of income shows how different sectors of the economy link together, for example how workers are employed by firms, and there is a money flow from firm to worker in wages, and a real flow the other way in labour supplied.

Question 2

injections into the circular flow of income

Answer 2

investment, government spending, exports

Question 3

withdrawals from the circular flow of income

Answer 3

saving, taxation, imports

Question 4

define ‘equilibrium level of output’

Answer 4

the output where aggregate demand is equal to aggregate supply

Question 5

factors shifting AD

Answer 5

a change in any component of AD-

interest rates, animal spirits and confidence, government policies, exchange rate, value of assets, taxation