26 The circular flow of income

Question 1

Income

Answer 1

Money that comes into a households
- Main source of income is wages however each factor of production produces different type of income

Question 2

Circular flow of income

Answer 2

Way in which income,money, services and goods flow in an economy
- households use incomes to buy goods ans servueds
- money flows back to firms

Question 3

Methods of measuring national income, output and expenditure

Answer 3

• national income - all the incomes that flow to households over a period of time
• national output - value of all the output produced in an economy over a period of time
• national expenditure - all the spending by households, firms and government over a period of time

Question 4

Injections

Answer 4

Routes from money to enter the circular flow of income
- investment - when firms purchase goods and services to be used in future production
- government expenditure - when the government purchases goods and services
- exports - when firms sell goods and services abroad - the money leaves the foreign economy and is injected into the economy in which firm operates

Question 5

Leakages

Answer 5

Routes for money to leave the circular flow of income
- savings - when households choose to save their money instead of spending it
- taxation - when the government takes money out of one circular flow
- imports - households and firms buy from foreign firms