The Circular Flow of Income
17 questions· page 1 of 2
An open economy with a government sector is in equilibrium. Households in this economy save $100 million and firms spend $150 million on investment.
Which combination of the budget balance and the current account balance would lead to an equilibrium position on the circular flow of income?
Options
| budget balance | current account balance | |
|---|---|---|
| A | $100m deficit | $50m deficit |
| B | $100m deficit | $50m surplus |
| C | $100m surplus | $50m deficit |
| D | $100m surplus | $50m surplus |
Based on the circular flow of income, which condition is necessary for an open economy to be in equilibrium?
Options
A Government investment is equal to private investment.
B Planned injections are equal to planned withdrawals.
C Spending by households is equal to taxes collected by government.
D Value of export earnings is equal to expenditure on imports.
What is always regarded as a cause, rather than a consequence, of a change in the circular flow of income?
Options
A a decrease in government tax revenue
B an increase in consumption spending
C an increase in savings
D an increase in the value of exports
The table shows some data for an economy.
| investment ($ million) | exports ($ million) | government expenditure ($ million) | savings ($ million) | imports ($ million) | taxation ($ million) | national income ($ million) |
|---|---|---|---|---|---|---|
| 200 | 100 | 50 | 125 | 62.5 | 62.5 | 600 |
| 200 | 100 | 50 | 150 | 75 | 75 | 700 |
| 200 | 100 | 50 | 175 | 87.5 | 87.5 | 800 |
| 200 | 100 | 50 | 200 | 100 | 100 | 900 |
What is the equilibrium level of national income?
Options
A $600 million
B $700 million
C $800 million
D $900 million
What is an example of an injection into the circular flow of income in an open economy?
Options
A consumer spending on goods
B expenditure on a government construction project
C spending by households on holidays abroad
D repayment of loans to commercial banks
A government is planning to increase its expenditure on defence. Half of this expenditure will be on equipment such as planes and weapons which it will have to import as it does not produce this equipment domestically.
What is the initial impact on injections and leakages from the circular flow of income?
Options
A The initial rise in injections is greater than the initial rise in leakages.
B The initial rise in injections is greater than the initial fall in leakages.
C The initial rise in injections is smaller than the initial rise in leakages.
D The initial rise in injections is smaller than the initial fall in leakages.
An open economy with a government is in equilibrium at a national income of $900 million.
Households spend $700 million and save $50 million.
Firms spend $100 million on investment.
The government spends $150 million and has a balanced budget.
How much is spent on exports and imports?
Options
| export spending ($ million) | import spending ($ million) | |
|---|---|---|
| A | 100 | 100 |
| B | 100 | 50 |
| C | 50 | 100 |
| D | 50 | 50 |
According to the circular flow of income, what would be the immediate result of an increase in the value of a country’s exports?
Options
A imports would increase
B national income would increase
C savings would increase
D taxes would increase
The table illustrates macroeconomic data for an economy. All figures are in $ billions.
What is the equilibrium real output?
| consumption expenditure | investment | government expenditure | exports | imports | real output | |
|---|---|---|---|---|---|---|
| A | 110 | 100 | 50 | 10 | 20 | 100 |
| B | 120 | 100 | 60 | 20 | 30 | 200 |
| C | 140 | 100 | 70 | 30 | 40 | 300 |
| D | 160 | 100 | 80 | 40 | 50 | 430 |
Options
A 100
B 200
C 300
D 430
The table lists the values of the components of an economy’s circular flow of income.
| component | value $m |
|---|---|
| government spending | 6 |
| exports | 8 |
| investment | 9 |
| imports | 7 |
| saving | 10 |
| tax | 5 |
What can be concluded about the economy from the information shown?
Options
A It has a budget surplus.
B It has a trade deficit.
C It is a mixed, open economy.
D Its circular flow is in equilibrium.