Fig. 1 shows withdrawals and injections in the circular flow of income for a small open economy. income flowsaving and taxesinvestment and exports© EAGLE BE...

Assessment: Economics 9214 | Paper 2 Mock 01 | Written Paper 2 Subject: Economics - 9214

Question 1 Report

Fig. 1 shows withdrawals and injections in the circular flow of income for a small open economy.

income flowsaving and taxesinvestment and exports© EAGLE BEACON GLOBAL

(a) Which named item in Fig. 1 is an injection? [1]
(b) Explain why an increased level of saving may reduce national income if no other flow changes. [1]

Answer Details

(a) Investment is an injection into the circular flow. Exports are also an injection. Each brings extra spending into the economy. [1]

(b) Saving is a withdrawal from the circular flow. If saving rises and no other flow changes, less income is spent on firms' goods and services. Firms receive less revenue, so national income decreases. [1]

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