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Circular flow of income

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Question 5

The diagram below represents a five-sector circular flow of income model for an open economy. The variables X1X_1X1​, X2X_2X2​, and X3 X_3\,X3​ represent specific economic flows passing through intermediate sectors.

Circular Flow of Income

Which of the following correctly classifies the flows X1X_1X1​, X2X_2X2​, and X3 X_3\,X3​ and states the algebraic condition required for macroeconomic equilibrium?

X1X_1X1​: Leakage; X2X_2X2​: Injection; X3X_3X3​: Leakage; Equilibrium: X1+T+X3=I+X2+XX_1 + T + X_3 = I + X_2 + XX1​+T+X3​=I+X2​+X

X1X_1X1​: Leakage; X2X_2X2​: Leakage; X3X_3X3​: Injection; Equilibrium: X1+T+X2=I+X3+XX_1 + T + X_2 = I + X_3 + XX1​+T+X2​=I+X3​+X

X1X_1X1​: Injection; X2X_2X2​: Injection; X3X_3X3​: Leakage; Equilibrium: X3+T+X=X1+X2+IX_3 + T + X = X_1 + X_2 + IX3​+T+X=X1​+X2​+I

X1X_1X1​: Leakage; X2X_2X2​: Injection; X3X_3X3​: Injection; Equilibrium: X1+T+I=X2+X3+XX_1 + T + I = X_2 + X_3 + XX1​+T+I=X2​+X3​+X

Circular flow of income Questions

  1. A Level
  2. /Economics
  3. /Circular flow of income