The circular flow of income
9.1What the syllabus asks of you
- the multiplier process: definition of the multiplier
- the multiplier process: formulae for and calculation of multiplier in a closed and open economy, with and without a government sector
- the multiplier process: calculation of: average and marginal propensities to save (aps and mps); average and marginal propensities to consume (apc and mpc); average and marginal propensities to import (apm and mpm); average and marginal rates of tax (art and mrt)
- the multiplier process: national income determination using AD and income approach with the multiplier process
- the multiplier process: calculation of effect of changing AD on national income using the multiplier
- components of Aggregate Demand (AD) and their determinants: consumption function: autonomous and induced consumer expenditure
- components of Aggregate Demand (AD) and their determinants: savings function: autonomous and induced savings
- components of Aggregate Demand (AD) and their determinants: autonomous and induced investment; the accelerator
- components of Aggregate Demand (AD) and their determinants: government spending
- components of Aggregate Demand (AD) and their determinants: net exports (exports minus imports)
- full employment level of national income and equilibrium level of national income: inflationary and deflationary gaps
Drill this topic
Every question on The circular flow of income, untimed, marked as you go.
Make a worksheet
Choose the years and how many questions, then print it with the answers on separate pages.
62 questions
1May / June 2026 · Paper 31 · Q15Show mark scheme →
Ayear 3
Byear 4
Cyear 5
Dyear 6
Mark scheme
2May / June 2026 · Paper 31 · Q16Show mark scheme →
Aa decrease in the marginal propensity to consume
Ba decrease in the marginal rate of tax
Can increase in the marginal propensity to import
Dan increase in the marginal propensity to save
Mark scheme
3May / June 2026 · Paper 31 · Q18Show mark scheme →
A$1 million
B$4 million
C$5 million
D$6.25 million
Mark scheme
4May / June 2026 · Paper 31 · Q23Show mark scheme →
A0.6, X
B0.6, Y
C0.8, X
D0.8, Y
Mark scheme
5May / June 2026 · Paper 32 · Q16Show mark scheme →
A2
B2 1/2
C3
D6
Mark scheme
6May / June 2026 · Paper 33 · Q15Show mark scheme →
Ayear 3
Byear 4
Cyear 5
Dyear 6
Mark scheme
7May / June 2026 · Paper 33 · Q16Show mark scheme →
Aa decrease in the marginal propensity to consume
Ba decrease in the marginal rate of tax
Can increase in the marginal propensity to import
Dan increase in the marginal propensity to save
Mark scheme
8May / June 2026 · Paper 33 · Q18Show mark scheme →
A$1 million
B$4 million
C$5 million
D$6.25 million
Mark scheme
9May / June 2026 · Paper 33 · Q23Show mark scheme →
Amarginal propensity to consume 0.6, position X
Bmarginal propensity to consume 0.6, position Y
Cmarginal propensity to consume 0.8, position X
Dmarginal propensity to consume 0.8, position Y
Mark scheme
10May / June 2026 · Paper 34 · Q18Show mark scheme →
Alower marginal propensity to import
Bautomatic stabilisers
Ca reduction in marginal tax rates
Da reduction in the level of unemployment benefits
Mark scheme
11May / June 2026 · Paper 34 · Q19Show mark scheme →
A$\frac{1}{5}$
B$\frac{1}{4}$
C$\frac{3}{4}$
D$\frac{4}{5}$
Mark scheme
12Oct / Nov 2025 · Paper 34 · Q15Show mark scheme →
AAggregate demand is greater than the maximum potential output of the economy.
BInvestment increases at a greater rate than profits received by a firm.
CThe economy is operating below its full capacity.
DInnovation results in increased productivity in the economy.
Mark scheme
13Oct / Nov 2025 · Paper 34 · Q17Show mark scheme →
A$150 billion
B$300 billion
C$450 billion
D$600 billion
Mark scheme
14May / June 2025 · Paper 31 · Q15Show mark scheme →
A$1666 million
B$2000 million
C$3012 million
D$5000 million
Mark scheme
15May / June 2025 · Paper 32 · Q15Show mark scheme →
Aautonomous investment
Bdemand-pull inflation
Cthe accelerator principle
Dthe national income multiplier
Mark scheme
16May / June 2025 · Paper 32 · Q16Show mark scheme →
Aautonomous consumer spending
Bautonomous saving
Cinduced consumer spending
Dinduced savings
Mark scheme
17May / June 2025 · Paper 33 · Q15Show mark scheme →
A$1666 million
B$2000 million
C$3012 million
D$5000 million
Mark scheme
18May / June 2025 · Paper 34 · Q13Show mark scheme →
Aautonomous consumption
Bautonomous investment
Cthe average propensity to consume
Dthe marginal propensity to consume
Mark scheme
19May / June 2025 · Paper 34 · Q14Show mark scheme →
AA
BB
CC
DD
Mark scheme
20May / June 2025 · Paper 34 · Q15Show mark scheme →
Aa lower marginal propensity to consume than in the previous year
Ba lower marginal propensity to save than in the previous year
Ca smaller fall in national income than occurred in the previous year
Da smaller rise in national income than occurred in the previous year
Mark scheme
21Feb / March 2025 · Paper 32 · Q15Show mark scheme →
Ahow changes in consumption lead to changes in income
Bhow changes in income lead to changes in consumption
Chow changes in income lead to changes in investment
Dhow changes in investment lead to changes in income
Mark scheme
22Feb / March 2025 · Paper 32 · Q19Show mark scheme →
A$40 million
B$160 million
C$260 million
D$840 million
Mark scheme
23Feb / March 2025 · Paper 32 · Q24Show mark scheme →
AThe currency will depreciate, increasing exports and reducing the trade deficit.
BThe increase in real output will be limited as the value of the multiplier is low.
CThe money supply will fall, leading to a reduction in aggregate demand.
DThere will be a decrease in the rate of interest, causing demand-pull inflation.
Mark scheme
24Oct / Nov 2024 · Paper 31 · Q19Show mark scheme →
AThe average propensity to consume does not change.
BThe initial average propensity to consume is 5.
CThe marginal propensity to consume is 0.5.
DThe marginal propensity to consume is 2.
Mark scheme
25Oct / Nov 2024 · Paper 32 · Q19Show mark scheme →
Aa deflationary gap
Ba trade deficit
Can inflationary gap
Dan employment gap
Mark scheme
26Oct / Nov 2024 · Paper 33 · Q19Show mark scheme →
Adecreased; decreased
Bdecreased; increased
Cincreased; decreased
Dincreased; increased
Mark scheme
27May / June 2024 · Paper 31 · Q19Show mark scheme →
Aincreasing average propensity to save
Bflexible costs and prices
Cfull employment of resources
Dopen economies
Mark scheme
28May / June 2024 · Paper 32 · Q19Show mark scheme →
Aa 5% increase in the MPC together with a 5% fall in the MRT
Ba 5% increase in the MPM together with a 5% fall in the MRT
Ca 5% increase in the MPS together with a 5% fall in the MPM
Da 5% increase in the MRT together with a 5% fall in the MPS
Mark scheme
29May / June 2024 · Paper 33 · Q19Show mark scheme →
Aincreasing average propensity to save
Bflexible costs and prices
Cfull employment of resources
Dopen economies
Mark scheme
30Oct / Nov 2023 · Paper 31 · Q17Show mark scheme →
Acomponents of aggregate expenditure
Bnumber of injections into the circular flow of income
Cnumber of leakages from the circular flow of income
Dvalue of the economy's multiplier
Mark scheme
31Oct / Nov 2023 · Paper 31 · Q18Show mark scheme →
AJK
BJL
CNY_F
DMY_F
Mark scheme
32Oct / Nov 2023 · Paper 31 · Q22Show mark scheme →
AInvestment depends on the level of business confidence.
BInvestment depends on the level of savings.
CInvestment depends on the rate of change in national income.
DInvestment depends on the rate of change of interest rates.
Mark scheme
33Oct / Nov 2023 · Paper 32 · Q17Show mark scheme →
A1
B2
C5
D10
Mark scheme
34Oct / Nov 2023 · Paper 32 · Q19Show mark scheme →
Athe level of GDP.
Bchanges in GDP.
Cthe level of interest rates.
Dchanges in interest rates.
Mark scheme
35Oct / Nov 2023 · Paper 33 · Q16Show mark scheme →
Awhen firms have spare production capacity
Bwhen firms use labour-intensive production
Cwhen the increase in income is regarded as permanent
Dwhen the increase in income is regarded as temporary
Mark scheme
36Oct / Nov 2023 · Paper 33 · Q20Show mark scheme →
Aa fall in planned savings
Ba fall in the marginal propensity to import
Can increase in the average propensity to consume
Da reduction in the level of defence expenditure
Mark scheme
37Oct / Nov 2023 · Paper 33 · Q21Show mark scheme →
Aa decrease in confidence
Ba decrease in the rate of growth of national income
Can increase in the price of capital equipment
Dan increase in the rate of interest
Mark scheme
38May / June 2023 · Paper 31 · Q20Show mark scheme →
APQ
BRV
CTV
DUV
Mark scheme
39May / June 2023 · Paper 31 · Q22Show mark scheme →
Awhen households have a high level of autonomous consumption
Bwhen households have a high level of compulsory saving
Cwhen households have a high marginal propensity to consume
Dwhen households have a high marginal propensity to save
Mark scheme
40May / June 2023 · Paper 32 · Q18Show mark scheme →
AIt is spending on capital goods by firms because the rate of growth in demand for final goods and services increases.
BIt is spending on capital goods by firms because the cost of borrowing has fallen.
CIt is spending on capital goods by firms because they want to access new technology to improve the output per worker.
DIt is spending on new capital goods by firms replacing old and obsolete capital goods.
Mark scheme
41May / June 2023 · Paper 32 · Q20Show mark scheme →
AQE
BRT
CSR
DST
Mark scheme
42May / June 2023 · Paper 32 · Q21Show mark scheme →
Ahigh average and marginal tax rates
Bhigh marginal propensity to save
Clow level of autonomous consumption
Dlow marginal propensity to import
Mark scheme
43May / June 2023 · Paper 33 · Q20Show mark scheme →
APQ
BRV
CTV
DUV
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44May / June 2023 · Paper 33 · Q22Show mark scheme →
Awhen households have a high level of autonomous consumption
Bwhen households have a high level of compulsory saving
Cwhen households have a high marginal propensity to consume
Dwhen households have a high marginal propensity to save
Mark scheme
45Feb / March 2023 · Paper 32 · Q21Show mark scheme →
AConsumption is a function of the rate of change of income.
BIncome is a function of the rate of change of investment.
CInvestment is a function of the rate of change of income.
DInvestment is a function of the rate of interest.
Mark scheme
46Oct / Nov 2022 · Paper 31 · Q26Show mark scheme →
AImport expenditure would increase by $200m.
BImport expenditure would increase by $1000m.
CTax revenues would increase by $75m.
DTax revenues would increase by $375m.
Mark scheme
47Oct / Nov 2022 · Paper 32 · Q28Show mark scheme →
AAggregate demand will be boosted through the investment multiplier.
BCountry X will have to use its foreign reserves to eliminate any trade deficit.
CThe balance of payments will be affected with the outflow of profits to foreigners.
DThe rate of inflation will increase if country X tries to increase capacity.
Mark scheme
48Oct / Nov 2022 · Paper 33 · Q24Show mark scheme →
Aaggregate demand: C + I; multiplier: 1 / marginal propensity to consume
Baggregate demand: C + I; multiplier: 1 / marginal propensity to save
Caggregate demand: C + I – S; multiplier: 1 / marginal propensity to consume
Daggregate demand: C + I – S; multiplier: 1 / marginal propensity to save
Mark scheme
49May / June 2022 · Paper 31 · Q26Show mark scheme →
AMPC constant, APC constant
BMPC constant, APC falling
CMPC falling, APC constant
DMPC falling, APC falling
Mark scheme
50May / June 2022 · Paper 33 · Q26Show mark scheme →
AMPC constant, APC constant
BMPC constant, APC falling
CMPC falling, APC constant
DMPC falling, APC falling
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51Feb / March 2022 · Paper 32 · Q27Show mark scheme →
Aconsumption on investment.
Binvestment on national income.
Cnational income on consumption.
Dnational income on investment.
Mark scheme
52Oct / Nov 2021 · Paper 31 · Q24Show mark scheme →
A0.20
B0.80
C0.83
D1.00
Mark scheme
53Oct / Nov 2021 · Paper 31 · Q30Show mark scheme →
Aa fall in the rate of taxation together with a rise in the saving rate
Ba rise in government expenditure together with a fall in the propensity to import
Ca rise in investment expenditure together with a rise in the rate of taxation
Da rise in the propensity to save together with a rise in exports
Mark scheme
54Oct / Nov 2021 · Paper 32 · Q25Show mark scheme →
A$60 million
B$100 million
C$166 million
D$250 million
Mark scheme
55Oct / Nov 2021 · Paper 33 · Q26Show mark scheme →
A–$200 billion
B–$40 billion
C+$40 billion
D+$200 billion
Mark scheme
56May / June 2021 · Paper 31 · Q24Show mark scheme →
AChanges in National Income determine the level of investment.
BThe level of consumption depends on the level of National Income.
CThe levels of consumption and investment together determine the level of National Income.
DWhen investment changes, there will be a greater change in equilibrium National Income.
Mark scheme
57May / June 2021 · Paper 31 · Q25Show mark scheme →
A60
B240
C280
D640
Mark scheme
58May / June 2021 · Paper 32 · Q24Show mark scheme →
A$2500
B$6250
C$10 000
D$25 000
Mark scheme
59May / June 2021 · Paper 33 · Q24Show mark scheme →
AChanges in National Income determine the level of investment.
BThe level of consumption depends on the level of National Income.
CThe levels of consumption and investment together determine the level of National Income.
DWhen investment changes, there will be a greater change in equilibrium National Income.
Mark scheme
60May / June 2021 · Paper 33 · Q25Show mark scheme →
A60
B240
C280
D640
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61Feb / March 2021 · Paper 12 · Q16Show mark scheme →
A> 1 ; > 1
B> 1 ; < 1
C< 1 ; > 1
D< 1 ; < 1
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62Feb / March 2021 · Paper 32 · Q24Show mark scheme →
A$1000 million
B$500 million
C$100 million
D$80 million
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