Theme 2- National Income (key terms)

Question 1

The extended circular flow model

Answer 1

The flows of income and spending in a whole economy. Made up of consumer expenditure (C) and total factor income payments (Y) flow from firms to households (wages, rents, profits/dividends, interest)

Question 2

Injection

Answer 2

Money which enters the economy.
Additions to investment (I), government spending (G), or exports (X) that boost the circular flow of income (increase AD)

Question 3

Withdrawal

Answer 3

Money which leaves the economy.
Increases in savings (S), taxation (T), or imports (M), reducing the flow of income that lead to a contraction/shrinking of output (decrease in AD)

Question 4

Investment (I)

Answer 4

Spending by firms on capital goods, used to increase their future production - injection in the circular flow

Question 5

Exports (X)

Answer 5

Goods sold by UK firms to consumers in other countries - injection in the circular flow

Question 6

Government spending (G)

Answer 6

Spending by the government - injection

Question 7

Savings (S)

Answer 7

When households choose to save some of their disposable income - withdrawal from circular flow

Question 8

Imports (M)

Answer 8

Spending by UK households on Goods/service produced by foreign firms - withdrawal from circular flow

Question 9

Taxation (T)

Answer 9

UK government taxes UK households - withdrawal from the circular flow