Topic 4 The Economy and Business Activity

What are withdrawals in the circular flow of income?

• Investment

• Savings

• Exports

• Government Spending

Which of the following is NOT a component of total withdrawals?

• Investment (Id)

• Net taxes (T)

• Net saving (S)

• Import expenditure (M)

What does the formula W = S + T + M represent?

• Total injections

• Total withdrawals

• Total taxes

• Total savings

What is the effect of injections exceeding withdrawals?

• Economic growth

• Stagnation

• Deflation

• Recession

Which of the following is an example of an injection?

• Taxes

• Imports

• Savings

• Exports

What does the aggregate demand (AD) curve represent?

• Total production in an economy

• Total savings in an economy

• Total spending on goods and services

• Total income in an economy

What happens when withdrawals exceed injections?

• Higher employment

• Increased production

• Increased exports

• Reduced economic activity

What is the relationship between planned injections and planned withdrawals?

• They are unrelated

• They are always equal

• They only affect government spending

• They determine GDP changes

What does the multiplier effect describe?

• The increase in GDP from an initial rise in aggregate expenditure

• The balance of imports and exports

• The decrease in unemployment rates

• The relationship between savings and investment

What does the 45° line in an income-expenditure diagram represent?

• Total exports equal total imports

• Total injections equal total savings

• Total income equals total consumption and withdrawals

• Total income equals total withdrawals