What this practice covers
These questions are drawn from past CIE 9708 papers and filtered to introduction to the circular flow of income. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
Start practising Paper 1 MCQs →
What examiners see students get wrong here
These are the errors that cost marks on introduction to the circular flow of income, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Exports are a leakage. Wrong. Exports are foreign spending on domestic output, so they are an injection.
- Imports are an injection. Wrong. Spending on imports creates income abroad, so it is a leakage.
- Taxes are an injection because government receives money. Wrong. Taxes withdraw income from private spending. Government purchases are a separate injection.
- Transfer payments are automatically government spending in GDP. Wrong. Transfers are not payment for current output, although they may influence consumption.
- Saving means money disappears permanently. Wrong. Saving is a leakage from current consumption but may finance investment.
- Investment means purchasing shares. Wrong in national-income accounting. Investment means spending on newly produced capital goods and inventories.
- A closed economy has no government. Wrong. Closed means no foreign trade.
- Equilibrium requires exports to equal imports. Wrong. Total injections must equal total leakages. Individual components need not be equal.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Introduction to the Circular Flow of Income revision notes.