2.4.1 Circular flow of income

• What does the circular flow of income illustrate?

  Flow of money in economy
• Order the flow of money in the circular flow model:

  1️⃣ Households provide factors of production to firms

  2️⃣ Firms produce goods and services

  3️⃣ Households spend money on goods and services

  4️⃣ Firms use expenditure to pay income to households
• The circular flow includes injections like investment and government spending, and withdrawals like savings and taxes
• What is the role of firms in the circular flow of income?

  Produce goods and services
• Households receive wages, rent, interest, and profit as income from firms.
• Match the injection or withdrawal with its impact on the circular flow:

  Investment ↔️ Increases

  Imports ↔️ Decreases
• What do firms receive from households in exchange for income in the circular flow of income?

  Factors of production
• Firms produce goods and services and receive expenditure from households.
• Arrange the flows between households and firms in the correct order according to the circular flow of income:

  1️⃣ Households provide factor services to firms

  2️⃣ Firms provide income to households

  3️⃣ Households provide consumption expenditure to firms

  4️⃣ Firms provide goods and services to households
• Injections into the circular flow of income include savings and taxes.

  False
• What is the circular flow of income model designed to illustrate?

  Flow of money
• Households provide factors of production to firms and receive income in return.
• Which of the following is an example of a withdrawal in the circular flow of income?

  Savings
• Injections increase the flow of income and include government spending, exports, and investment
• Savings is an injection into the circular flow of income.

  False
• What is the purpose of withdrawals in the circular flow of income?

  Decrease income flow
• The circular flow of income model illustrates the flow of money between households and firms
• Arrange the flows in the circular flow model in the correct order:

  1️⃣ Households provide labor to firms

  2️⃣ Firms produce goods and services

  3️⃣ Households purchase goods and services

  4️⃣ Firms pay income to households
• What are the three types of injections in the circular flow of income?

  G, X, I
• Match the withdrawals with their definitions:

  Savings ↔️ Income not spent

  Taxes ↔️ Payments to the government

  Imports ↔️ Goods purchased from abroad
• Exports are a withdrawal in the circular flow of income.

  False
• Households provide factors of production to firms and receive income
• What do firms receive from households in exchange for goods and services?

  Expenditure
• Income flows from firms to households.
• Match the flow in the circular flow model with its description:

  Households to Firms ↔️ Factor services (labor, capital)

  Firms to Households ↔️ Income (wages, rent, profit)
• Injections in the circular flow include government spending, investment, and exports
• What does the circular flow of income model illustrate?

  Flow of money
• The circular flow of income illustrates the continuous flow of income between households and firms
• Households provide factors of production to firms and receive income in return.
• What do firms produce in exchange for expenditure from households?

  Goods and services
• Injections in the circular flow include investment, government spending, and exports
• Withdrawals in the circular flow are also known as leakages.
• What happens when a household buys goods from a firm in the circular flow model?

  Money flows from household to firm
• The circular flow of income illustrates the continuous interaction between households and firms
• What do households receive in return for providing factors of production to firms?

  Income
• When a household buys groceries, the money moves from the household to the firm
• What does the circular flow of income model illustrate?

  The continuous flow of money between households and firms
• Households provide factors of production to firms and receive income in return.income
• What do firms produce in the circular flow of income model?

  Goods and services
• Injections into the circular flow of income include investment, government spending, and exports.