Assertion (A): In a two-sector economy, if planned investment is greater than planned saving, income will rise.
Reason (R): Injections greater than leakages mean that spending on output is greater than the income paid out.

Both A and R are true, and R is the correct explanation of A.Correct answerYour answerBoth A and R are true, but R is not the correct explanation of A.Correct answerYour answerA is true, but R is false.Correct answerYour answerA is false, but R is true.Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

Extra spending runs down firms' stocks, so they produce more and pay out more income.
R is why the flow grows: injections exceed leakages.

Concept: When injections exceed leakages
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsThe circular flow of income

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Ten questions from Basic Concepts & the Circular Flow, at your own pace.

Assertion (A): In a two-sector economy, if planned investment is greater than planned saving, income will rise.Reason (R): Injections greater than leakages mean that spending on output is greater than the income paid out.

Explanation

Assertion (A): In a two-sector economy, if planned investment is greater than planned saving, income will rise.
Reason (R): Injections greater than leakages mean that spending on output is greater than the income paid out.