2. The circular flow of income and expenditure The income and expenditure approa

Question

2. The circular flow of income and expenditure The income and expenditure approaches to measuring a nation's GDP can be combined using the circular flow model Categorize each of the following flows as part of either aggregate demand or national income. Aggregate Demand National Income Consumption (C) Investment (I) Government purchases (G) Net exports (X IM) Net taxes (NT) Disposable income (DI) While national income and domestic product must be equal, income must also equal expenditure for each of the six sectors in the circular flow diagram: firms, consumers, governments, financial system, investors, and the "rest of the world." For example, the amount of disposable income flowing into the consumers sector must equal the amount of flowing out of this sector. consumption plus saving

Explanation / Answer

Yes all your work is correct.

Because the components of AD are

AD = C + I + G +(X - M)

and the components of national income are net taxes and depriciation and other factors.

Second one is correct because disposable income is a inflow while consumption plus saving is a outflow.

Third one is correct because imports, savings and taxation or net tax are the main leakages and export, investment and government purchases are injections.

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