Introduction to the circular flow of income — Paper 1 · A Level Economics 9708

19 The table illustrates macroeconomic data for an economy. All figures are in $ billions. What is the equilibrium real output? consumption investment government exports imports real output expenditure expenditure A 110 100 50 10 20 100 B 120 100 60 20 30 200 C 140 100 70 30 40 300 D 160 100 80 40 50 430

1 marks

Answer: C

This question in 9708/11 Oct/Nov 2018

30 What are the components of aggregate demand? A consumption + investment + government spending + (exports – imports) B consumption + investment + taxation – (exports – imports) C consumption + saving + taxation – (exports – imports) D consumption + saving + taxation + (exports – imports)

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2021

18 Which statement about the circular flow of income is correct? A Exports and imports do not affect the equilibrium level of national income because they always cancel each other out. B The greater the level of saving, the greater the level of injections in the form of investment must be. C When consumers use past savings to increase their spending, there will be a rise in national income. D When a government increases withdrawals by increasing the rate of income tax, there must be an equivalent increase in injections to compensate.

1 marks

Answer: C

This question in 9708/12 Feb/March 2023

21 The diagram shows a basic two-sector circular flow of income. factor market firms households product market What can be concluded about the direction of flows? A Consumer expenditure flows anticlockwise. B Goods and services flow clockwise. C Incomes flow anticlockwise. D Resources flow anticlockwise.

1 marks

Answer: D

This question in 9708/12 May/June 2023

24 General equilibrium in the macroeconomy is achieved when total injections are equal to total leakages. What is most likely to cause disequilibrium in the macroeconomy in the short run? A an increase in government spending of $10bn and a decrease in exports of $10bn B an increase in investment of $30bn and a decrease in household savings of $30bn C an increase in spending on imports of $40bn and an increase in government spending of $40bn D an increase in taxation of $40bn and a decrease in spending on imports of $40bn

1 marks

Answer: B

This question in 9708/11 Oct/Nov 2023

17 Which changes will increase the circular flow of income? higher higher higher imports investment taxation A yes no no B yes yes no C no yes yes D no yes no

1 marks

Answer: D

This question in 9708/13 Oct/Nov 2023

18 An economy in equilibrium has a trade deficit of $20bn and a budget surplus of $20bn. Investment spending is $50bn. What is the total saving? A $5bn B $10bn C $15bn D $20bn

1 marks

Answer: B

This question in 9708/13 Oct/Nov 2023

17 According to the circular flow of income, what would be the immediate result of an increase in the value of a country’s exports? A imports would increase B national income would increase C savings would increase D taxes would increase

1 marks

Answer: B

This question in 9708/12 Feb/March 2024

15 The table illustrates macroeconomic data for an economy. All figures are in $ billions. What is the equilibrium real output? consumption government investment exports imports real output expenditure expenditure A 110 100 50 10 20 100 B 120 100 60 20 30 200 C 140 100 70 30 40 300 D 160 100 80 40 50 430

1 marks

Answer: C

This question in 9708/11 May/June 2024

17 The table lists the values of the components of an economy’s circular flow of income. component value $m government spending 6 exports 8 investment 9 imports 7 saving 10 tax 5 What can be concluded about the economy from the information shown? A It has a budget surplus. B It has a trade deficit. C It is a mixed, open economy. D Its circular flow is in equilibrium.

1 marks

Answer: C

This question in 9708/13 May/June 2024

17 What is most likely to increase a country’s circular flow of income? A Its budget deficit increases. B Its imports increase. C Its interest rates increase. D Its exchange rate increases.

1 marks

Answer: A

This question in 9708/11 Oct/Nov 2024

16 In the circular flow of income model of an economy, Y, C, I, G, X, S, T and M represent total income, consumption, investment, government expenditure, exports, saving, taxation and imports respectively. Which statement is correct? A At equilibrium, the levels of Y and C are always the same. B Governments always adjust G so that the economy is in equilibrium. C If I is not equal to S, it is still possible for the national income to be in equilibrium. D If the national income is in equilibrium, X must be equal to M.

1 marks

Answer: C

This question in 9708/13 Oct/Nov 2024

17 An open economy with a government sector is in equilibrium. Households in this economy save $100 million and firms spend $150 million on investment. Which combination of the budget balance and the current account balance would lead to an equilibrium position on the circular flow of income? budget balance current account balance A $100m deficit $50m deficit B $100m deficit $50m surplus C $100m surplus $50m deficit D $100m surplus $50m surplus

1 marks

Answer: D

This question in 9708/11 May/June 2025

17 Based on the circular flow of income, which condition is necessary for an open economy to be in equilibrium? A Government investment is equal to private investment. B Planned injections are equal to planned withdrawals. C Spending by households is equal to taxes collected by government. D Value of export earnings is equal to expenditure on imports.

1 marks

Answer: B

This question in 9708/12 May/June 2025

15 What is an example of an injection into the circular flow of income in an open economy? A consumer spending on goods B expenditure on a government construction project C spending by households on holidays abroad D repayment of loans to commercial banks

1 marks

Answer: B

This question in 9708/12 Oct/Nov 2025

19 A government is planning to increase its expenditure on defence. Half of this expenditure will be on equipment such as planes and weapons which it will have to import as it does not produce this equipment domestically. What is the initial impact on injections and leakages from the circular flow of income? A The initial rise in injections is greater than the initial rise in leakages. B The initial rise in injections is greater than the initial fall in leakages. C The initial rise in injections is smaller than the initial rise in leakages. D The initial rise in injections is smaller than the initial fall in leakages.

1 marks

Answer: A

This question in 9708/13 Oct/Nov 2025