Understanding the Circular Flow ICE TASK 1

Which of the following is considered a leakage in the circular flow of income?

• Government spending

• Business investment

• Savings by households

• Export earnings

The role of financial institutions in the circular flow is to produce goods and services.

• True

• False

What kind of income does capital earn?

• Rent

• Wages

• Interest

• Profit

A stock is measured at a specific point in time, while a _____ is measured over a period of time.

Which of the following is NOT a type of firm described in the LU1 slides?

• Sole proprietorship

• Public company

• Limited liability society

• Multinational company

Which item is an example of an injection in the circular flow?

• • Imports

• • Government spending

• Savings

If in a given year, South Africa has higher leakages (S + T + Z) than injections (I + G + X), what will happen to the national income?

• It will increase

• It will stay the same

• It will decrease

• There will be hyperinflation

Which sector owns the factors of production and sells them to firms in exchange for income?

• Firms

• Government

• Financial institutions

• Households

Briefly explain the difference between a closed and an open economy in the context of the circular flow.