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