Circular Flow, AE & Business Cycle revision

What is the Circular Flow of Income Model primarily used to illustrate?

• The flow of goods and services in an economy

• The flow of income and expenditure in an economy

• The flow of government policies

• The flow of international trade

Which of the following is NOT a final component of Aggregate Expenditure?

• Consumption

• Investment

• Government Spending

• Imports

In the Circular Flow of Income Model, households provide which of the following to firms?

• Goods and services

• Factors of production

• Government policies

• Taxes

Which factor is most likely to increase Aggregate Expenditure?

• A rise in interest rates

• A decrease in consumer confidence

• An increase in government spending

• An increase in taxes

What are leakages in the Circular Flow of Income Model?

• Injections into the economy

• Withdrawals from the economy

• Government spending

• Exports

Which of the following is an example of an injection in the Circular Flow of Income Model?

• Savings

• Taxes

• Exports

• Imports

The Multiplier Effect is best described as:

• The initial change in spending leading to a larger change in national income

• The reduction in spending due to increased taxes

• The increase in spending due to lower interest rates

• The effect of inflation on purchasing power

Which of the following is a leakage from the Circular Flow of Income?

• Investment

• Government spending

• Savings

• Exports

Government spending is considered an injection because:

• It reduces the national debt

• It increases the overall demand in the economy

• It decreases taxes

• It increases savings

Which of the following is NOT a factor affecting Aggregate Expenditure?

• Consumer confidence

• Interest rates

• Exchange rates

• Population size