Explain how an increase in leakages can affect the size of the circular flow of income.

To what extent is the use of national income statistics an effective way of comparing the standard of living between countries?

Answers may include:

• definitions of leakages, circular flow of income
• diagram of the circular flow of income
• explanation that when leakages increase money flows in the circular flow of income will fall and reduce the size of the circular flow of income
• examples of where an increase in leakages have reduced national income.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

• definitions of national income and standard of living
• diagram: a diagram is not required for this question
• explanation of how national income statistics are an effective way of making comparisons between countries
• examples of how national income statistics have been used to compare countries
• synthesis or evaluation (to what extent).

Evaluation may include: consideration of the limitations of national income statistics to compare living standards such as: different methods of calculation, the impact of different types of output on living standards, environmental factors, crime levels, political instability, the exchange rate and income distribution.

NB Definitions, theory, and examples that have already been given in part (a), and then referred to in part (b), should be rewarded.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Opinions or conclusions should be presented clearly and should be supported by appropriate examples.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.