Practise using circular flow models to track income, injections, leakages and equilibrium changes in closed and open economies.
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.
Follow the point-based marking guidance at the top of this mark scheme and award:
up to 3 marks for AO1 Knowledge and understanding up to 3 marks for AO2 Analysis
up to 2 marks for AO3 Evaluation.
AO1 Knowledge and Understanding (max 3 marks)
A simple circular flow diagram (1) that clearly shows/ explains separately that expenditure flows from households to firms (1) and that income flows from firms to households (1) Note:, this is all that is required for the knowledge and understanding marks regardless of the complexity of the diagram.
AO2 Analysis (max 3 marks)
- The first two marks are for an analysis of injections greater than withdrawals and how this leads to economic growth/increase in national income and (1) for an analysis of withdrawals greater than injections and how this leads to a fall in economic growth/national income (1).
- Reference must be made in some way to the fact that in open economy injections include income from exports and that leakages includes expenditure on imports along with at least one other example of an injection and one other example of a leakage for the (1).
AO3 Evaluation (max 2 marks)
- Evaluation should explain how the relative sizes of injections and leakages will lead either to economic growth or a fall in economic growth with 1 mark reserved for a justified conclusion.
Please use a text box to show the mark split e.g., 2,2,1
AO1 Knowledge and understanding
AO2 Analysis
AO3 Evaluation
Which changes will increase the circular flow of income?
higher
imports
higher
investment
higher
taxation
yes
no
no
yes
yes
no
no
yes
yes
no
yes
no
D
An economy in equilibrium has a trade deficit of $ 20 bn and a budget surplus of $ 20 bn. Investment spending is $ 50 bn.
What is the total saving?
$ 5 b n
$ 10 b n
$ 15 b n
$ 20 b n
B