IGCSE Economics Paper-1: Specimen Questions with Answers 1 - 1 of 10

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Discuss how an increase in injections may affect the equilibrium level of national income.

Explanation

  • An open economy participates in foreign trade. The country exports goods and services to the other countries and also imports certain goods from the other countries. As the government expenditure raises the demand for goods, therefore this expenditure can be considered as the injections in the national income.

  • Exports are injections because they increase national income of the country. Imports are leakages in national income because they represent the payments for the goods to other countries. Injections and leakages from the national income of a country affect the equilibrium level of national income.

  • An economy is in equilibrium when national income (I) is equal to national expenditure (E).

——- (1)

Also

………………………… (2)

From (1) and (2)

Where C consumption, S Saving, T Taxes, G Government Expenditure, X Exports and M Imports

  • An economy is in equilibrium when aggregate income is equal to aggregate expenditure.

  • The effect of the injections on the equilibrium level of national income can be illustrated by a diagram. The diagram shows exports are more than imports or net exports are positives i. e. .

  • The equilibrium level of income is determined at point E. At this point, aggregate supply is equal to aggregate demand . If the net exports are positive, the aggregate demand curves shifts upward. Demand curve shift from C to .

The National Income

The National Income

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