4.1 National Income + 4.2 Injections & Withdrawals

Question 1

How does the circular flow of income work?

Answer 1

1) Households receive factor incomes (wages and salaries)
2) Households spend on goods and services
3) Businesses pay for factor inputs
4) Businesses receive revenue from consumers
5) Govt collects taxes from households and firms
6) Govt provides purchases and social transfers
7) Country exports and imports

Question 2

Circular flow diagram?

Answer 2

Question 3

What are the injections into the circular flow?

Answer 3

• Government spending
• Investment
• Exports

Question 4

What are the leakages from the circular flow?

Answer 4

• Savings
• Imports
• Taxes