Q1. What are the two markets shown in the circular flow model?

Provide examples of what is

exchanged (bought and sold) in each of these.

Q2. The circular flow model shows that households and firms are both buyers and sellers
simultaneously. How is this possible?

Q3. Use the simple circular flow model to (a) show the circular flow of income, and (b) show the
equivalence between factor income flow, household expenditure flow and the value of output flow.

Q4. (a) What are leakages and injections in the circular flow of income? (b) Use the circular flow of
income model to illustrate how the three pairs of leakages and injections are linked together.

Q5. What happens to the size of the income flow when (a) leakages are larger than injections, and
(b) injections are larger than leakages?

Q6. If the Commonwealth Government was to run a budget surplus how will this affect the circular
flow model?

Q7. China traditionally runs a trade surplus. All else being equal, how would China’s trade surplus
affect the size of its circular flow?