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CAIE A-Level Economics 4.2 Introduction to the circular flow of income Question Bank

Practise using circular flow models to track income, injections, leakages and equilibrium changes in closed and open economies.

Syllabus
2026–2028
Course
Economics 9708
Level
AS

Exam points

  • explain how moving from a closed to an open economy changes income flows and leakages
  • use tables to decide when planned injections equal planned withdrawals

Covered syllabus points

4.2.1—Circular flow of income4.2.2—Injections and leakages4.2.3—Circular flow equilibrium

4.2 Introduction to the circular flow of income question 1

[Maximum number: 8]

With the help of a diagram, explain what is meant by the circular flow of income in an open economy and consider the extent to which it can explain economic growth in such an economy.

4.2 Introduction to the circular flow of income question 2

[Maximum number: 1]

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.

4.2 Introduction to the circular flow of income question 3

[Maximum number: 1]

The table shows some data for an economy.

Table for Question 4.2 Introduction to the circular flow of income question 3 — CAIE A-Level Economics AS

What is the equilibrium level of national income?

A

$ 600 million

B

$ 700 million

C

$ 800 million

D

$ 900 million

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