Skip to content

CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

The circular flow of income shows that, for an economy in a given period, the value of national output, national income and national expenditure are:

National output, income and expenditure are equal in value when measured consistently. Whatever is produced generates income for factor owners, and that income is spent or matched by injections, so the three approaches measure the same flow.

  1. AEqual in value when measured consistentlyCorrect
  2. BAlways different because of leakages
  3. CEqual only when there is no government
  4. DEqual only in a closed economy without saving

Explanation

The circular flow implies the same flow of value can be measured as output produced, income earned or expenditure incurred, so the three are equal when measured consistently. Leakages are matched by injections in accounting terms, so they do not make the measures differ.

Did you get it right without looking?

One question tells you little. A timed set on National Income Accounting and Related Concepts shows your real accuracy, how long you take and where you lose marks.

Practise National Income Accounting and Related ConceptsFree diagnostic mock

More National Income Accounting and Related Concepts questions