2.4.1 The circular flow of income Quiz: Pearson Edexcel Economics, Unit 2

The 20 questions

1. In a basic two-sector circular flow of income model, which two groups interact?

   • Households and firms
   • Workers and unions
   • Importers and exporters
   • Governments and banks

2. What do households supply to firms in the circular flow of income model?

   • Goods and services
   • Factors of production
   • Tax revenues
   • Imported products

3. In a closed economy without injections or withdrawals, national output always equals national income and:

   • Government spending
   • Net wealth
   • Total exports
   • National expenditure

4. Unlike wealth, which is a stock concept, income in economics is defined as a:

   • Bank deposit total
   • Fixed capital asset
   • Flow of earnings
   • Stock of assets

5. What type of economic variable is income, in contrast to wealth?

   • Flow variable
   • Capital sum
   • Fixed asset
   • Stock variable

6. What is the total wealth of a household with £10,000 in savings and a £200,000 home?

   • £210,000
   • £190,000
   • £200,000
   • £40,000

7. Which component is classed as an injection into the circular flow of income?

   • Investment
   • Imports
   • Savings
   • Taxation

8. What is the immediate effect on the circular flow of income when household saving increases?

   • It expands
   • Injections increase
   • It remains constant
   • It shrinks

9. In the circular flow model, total national output is equal to national spending and national what?

   • Wealth
   • Taxation
   • Saving
   • Income

10. Which of the following is an example of an economic flow rather than a stock?

    • Bank balance
    • Property value
    • Monthly wages
    • National debt

11. If household income rises while the saving rate stays constant, what happens to consumption spending?

    • It rises
    • It becomes zero
    • It falls
    • It stays constant

12. Which of the following acts as a withdrawal from the circular flow of income?

    • Taxation
    • Government spending
    • Export revenues
    • Investment expenditure

13. A household pays £2,000 in tax and receives £1,500 in state benefits. What is the net withdrawal?

    • £500
    • £1,500
    • £3,500
    • £2,000

14. What major economic element is omitted from the standard circular flow of income model?

    • Factor payments
    • Wealth stocks
    • Firm output
    • Consumer spending

15. Why is the circular flow model useful for macroeconomic policy-makers?

    • Measures wealth inequality
    • Predicts stock prices
    • Sets interest rates
    • Shows economic linkages

16. A firm pays 100,000 in wages and 20,000 in rent. From the household perspective, what is total factor income?

    • 100,000
    • 20,000
    • 120,000
    • 80,000

17. Financial intermediaries help convert household savings into which circular flow injection?

    • Taxation
    • Exports
    • Government spending
    • Investment

18. Which household is most likely to have high wealth but low income?

    • High-earning graduate
    • Retired homeowner
    • Unemployed tenant
    • Minimum wage worker

19. Why is measuring national income alone an incomplete indicator of economic welfare?

    • Ignores total exports
    • Ignores inflation rates
    • Ignores interest rates
    • Ignores accumulated wealth

20. Which of the following is an example of a factor income payment?

    • Rent on land
    • State pension
    • Child benefit
    • Student grant

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