Circular Flow Model of Income and Spending Quiz

What is the primary role of households in the circular flow model?

• To export goods and services

• To produce goods and services

• To buy goods and services and receive income

• To collect taxes

Which of the following is the largest component of aggregate demand in the UK economy?

• Government spending

• Business investment

• Consumer spending

• Exports

How do governments create a leakage in the circular flow model?

• By collecting taxes

• By providing welfare support

• By exporting goods

• By importing goods

What is an example of an injection into the circular flow model by the government?

• Collecting income tax

• Building new social housing

• Imposing VAT

• Increasing national insurance

What happens when money leaves the circular flow in the form of imports?

• It increases aggregate demand

• It boosts consumer spending

• It creates a leakage

• It generates foreign currency inflows

Why is the external trade sector particularly important for highly open economies?

• Because it increases the rate of taxation

• Because it directly links a large portion of GDP to exports and imports

• Because it limits government spending

• Because it reduces the value of GDP

What role does the financial sector play in the circular flow model?

• It channels savings into loans and investments

• It provides welfare benefits

• It collects taxes from businesses

• It imports goods and services

How does business investment act as an injection into the circular flow?

• By funding new capital goods and technology

• By increasing imports

• By collecting taxes

• By reducing consumer spending

Which of the following is NOT a leakage in the circular flow model?

• Savings

• Imports

• Government spending

• Taxation

What happens when the rate of injections is greater than the rate of leakages in the circular flow model?

• The economy will experience deflation

• The level of national income or GDP will increase

• The level of national income or GDP will decrease

• The government will collect more taxes