National Income

What National Income covers

Covers how income circulates and what determines its level: the circular flow, injections and withdrawals, macroeconomic equilibrium on an AD/AS diagram, and the multiplier that amplifies any change in spending.

The 9 subtopics

Each one has its own page.

• The circular flow of incomeRecall questions on the flow between households and firms, and on what injections and withdrawals are.Open →
• The distinction between income and wealthRecall questions on income as a flow and wealth as a stock, and on how each can generate the other.Open →
• Injections, withdrawals and the equilibrium conditionRecall questions on what happens when injections exceed withdrawals, and on the condition for equilibrium.Open →
• What counts as an injection and a withdrawalRecall questions on investment, government spending and exports against saving, taxation and imports, and on the equilibrium equation.Open →
• Macroeconomic equilibrium and shifts in AD and ASRecall questions on where equilibrium lies on an AD/AS diagram and what happens to price and output when either curve shifts.Open →
• The shape of AS, demand-pull inflation and stagflationRecall questions on how the steepness of AS decides whether a demand shift raises output or prices, and on what produces stagflation.Open →
• The multiplier processRecall questions on the multiplier ratio, why each round of spending is smaller than the last, and which components it amplifies.Open →
• Marginal propensities to consume, save, tax and importRecall questions on the definitions and formulae for MPC, MPS, MPT and MPM, and on how each affects the multiplier.Open →
• Calculating the multiplier and why its size mattersRecall questions on the two multiplier formulae, working the value out, and what a larger multiplier means for fiscal policy.Open →

What you need to know

Answer each one before you reveal it.

Take National Income further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Income vs Wealth

  Income: a flow of earnings received over a period of time. Wealth: a stock of assets held at a point in time.

• The marginal propensity to consume vs The marginal propensity to withdraw

  The marginal propensity to consume: the proportion of each extra pound of income that is spent within the economy. The marginal propensity to withdraw: the proportion of each extra pound that leaks out through saving, taxation and imports.

• Demand-pull inflation vs Cost-push inflation

  Demand-pull inflation: a rising price level caused by aggregate demand growing faster than the economy can supply. Cost-push inflation: a rising price level caused by higher input costs shifting aggregate supply inward.

Questions from this topic

Each one with the model answer underneath.

1. 1

   In the circular flow of income model, what do households supply to firms?

   Model answer

   Households supply factors of production: land, labour, capital, and enterprise.

2. 2

   What payments do firms make to households in return for the factors of production?

   Model answer

   Firms pay factor incomes: rent (for land), wages (for labour), interest (for capital), and profit (for enterprise).

3. 3

   What do households do with the income they receive from firms?

   Model answer

   Households spend their income on goods and services produced by firms.

4. 4

   How do firms receive revenue in the circular flow model?

   Model answer

   Firms receive revenue from household spending on the goods and services they produce.

5. 5

   Why is the circular flow of income described as 'continuous and circular'?

   Model answer

   Because money flows continuously between households and firms in a repeating cycle—households provide factors of production, receive income, spend it on goods and services, which becomes firm revenue, enabling firms to pay for factors of production again.

6. 6

   What are injections in the context of the circular flow of income?

   Model answer

   Injections are additions to the circular flow of income that increase the total level of spending in the economy.

What is inside Levo

Six ways to work the same material.

National Income revision questions

What does National Income cover in Edexcel A-Level Economics A?

9 subtopics: the circular flow of income, the distinction between income and wealth, injections, withdrawals and the equilibrium condition, what counts as an injection and a withdrawal, macroeconomic equilibrium and shifts in ad and as, the shape of as, demand-pull inflation and stagflation, the multiplier process, marginal propensities to consume, save, tax and import and calculating the multiplier and why its size matters. Each one has its own page with questions and model answers.

How is National Income organised?

By the Edexcel 9EC0 specification, subtopic by subtopic, so it matches the order you are taught it in.