4.2.2.1 The circular flow of income NOTES

What does national income encompass?

• Total population of a country

• Total imports of a country

• Total exports of a country

• Total value of all goods and services produced within a country's borders during a specific period

Which of the following is the primary indicator used to calculate national income?

• Consumer Price Index

• Gross Domestic Product

• Net National Product

• Gross National Product

What does nominal income represent?

• Income adjusted for inflation

• Income in current prices without adjustment for inflation

• Income after taxes

• Income before taxes

What is real income adjusted for?

• Population growth

• Inflation

• Interest rates

• Taxes

What does real GDP measure?

• Exports minus imports

• Government spending

• Total value of goods and services after adjusting for inflation

• Total value of goods and services at current prices

What illustrates the continuous exchange of money and goods/services between households and firms?

• Supply and demand curve

• Circular flow of income

• Monetary policy

• Fiscal policy

What occurs when total injections match total withdrawals in an economy?

• Recession

• Surplus

• Equilibrium

• Deficit

Which of the following are considered injections into the economy?

• Consumer spending, exports, imports

• Investment, government spending, exports

• Savings, taxes, imports

• Taxes, government spending, savings

What effect does an increase in government spending have on the economy?

• Stimulates economic growth

• Decreases production

• Reduces consumer spending

• Increases imports

What can dampen economic activity?

• Increase in withdrawals

• Increase in investment

• Decrease in taxes

• Decrease in government spending