Which statement about the circular flow is FALSE?

Factor incomes earned by households are spent on goods produced by firmsCorrect answerYour answerSaving can return to the flow through investmentCorrect answerYour answerReal flows and money flows move in opposite directionsCorrect answerYour answerLeakages always reduce national income, whatever the injectionsCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

A leakage reduces income only if it is not matched by an equal injection.
When saving equals investment, income stays where it is.

Concept: Leakages balanced by injections
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.

Practise this chapter →

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

Practise this chapter All 72 questions in Basic Concepts & the Circular Flow Revise the notes for Basic Concepts & the Circular Flow

Which statement about the circular flow is FALSE?

Explanation