Assessment task 2
Assessment task instructions The UK economy is made up of millions of people and billions of economic activities. Within these activities, goods and services are created and exchanged. It can be complicated at times but a simple model explaining in general terms how an economy is organised and how those involved interact is a good start.
Question 1 Draw a diagram showing the participants of the Circular Flow of Income and explain how it operates. The simple model is sufficient for a beginning, but an economy is more complex and involves external influences, which can raise or lower economic activity.
Question 2 Identify three injections and three withdrawals from the Circular Flow of Income; give examples of each, and how they affect levels of economic activity. In the following table, there are examples of the growth rate of various countries over nine years Country United Kingdom United States Bulgaria Switzerland 1994 4.7 4.0 1.8 0.3 1995 2.9 2.7 2.1 0.6 1996 2.6
3.6 -9.4 0.3 1997 3.4
unequal
4.4 -
5.6 1.7 1998 3.0 4.3 4.0 2.4 1999 2.1
4.1 2.3 1.6 2000 3.1 3.8
5.4 3.0 2001 1.9 0.3 4.0 1.3 2002 1.6 2.4 3.5 0.6
Question 3 Choose any two of the following questions: (a)
Explain at least three difficulties encountered in measuring the National Income of a country. (b) Explain (using at least three reasons) why it is difficult to compare the growth rates of the countries in the table above. (c) Explain how the multiplier effect could substantially raise the level of National Income. (d) Explain the difference between real and nominal growth using the table above.
Assessment task 2 Outcome(s) covered 2 Suggested solution and making an assessment decision
Question 1 A circular flow diagram clearly identifying the following in their correct places: Firms: Households: Markets for factors of production: Land, labour, capital and wages, rent, profit and income. revenue spending Goods and services sold Goods and services bought Firms Households Production inputs Land, labour, capital Wages, rent, profit income （PPT 书P74）
Question 2Injections: Investment Withdrawals: Savings Government spending Taxation Exports Imports Appropriate examples: Investments: New factory being built 【built a new private enterprise (grow)】Government spending: New hospital being built (not PFI or PPP)【built public schools (grow)】Exports: Firm wins order to supply new computers to foreign firm 【In cooperation with foreign sales (grow)】Savings: High interest rates result in more savings【a country saves too much of its income (decline)】
Taxation: Imports: Government raise level of income tax 【government raise income tax (decline)】Record numbers of holidaymakers go on overseas holidays 【spending on foreign goods by more national】（PPT书P73）
Question 3
(a) Any three from the following: Errors/omissions from the data gathered，Black economy，Non-recorded items，eg DIY, housework, barter，Transfer income，Double counting.
(b) Methods may change over time. Accuracy of figures，Inflation adjustments，Social conditions，Work conditions，Unequal distribution of income. Spending patterns eg defence.
(c) Explanation of multiplier either in words or through use of algebra（书P199.200）. Explanation should show that an initial injection to National Income results in a larger level of NI than the original injection. Propensity to save and consume.
(d) An explanation of the difference between real and nominal growth, identifying that in real terms inflation is taken into account. In 1998 the growth rate is shown as 3%. If this figure is the nominal rate and inflation is measured at 3.1%, then there is no real growth in the economy. Any similar example will suffice.
【GDP=Consumption +Capital investment spending +General
Government spending +Exports +Imports of Goods(Services) GNP=GDP+NPIA(Net property income from abroad) National Income=GNP-Capital Consumption Real Growth Rate=Nominal Growth Rate-Inflation Rate (Real Growth is the grow adjusted for inflation, Nominal Growth is the grow in the current value of money, Inflation Rate is measure of rate of change in price index)
2000: 3.1-3.2=-0.1 no real growth 】

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