Explain the likely effects on the circular flow of income of the change in unemployment between 2013 and 2015.

(Context - a graph is provided showing unemployment falling by around 3%).As unemployment fell by 3% between 2013 and 2015, there will be an increase in money in the circular flow of income as more people are now receiving wages. This increase in income will result in an increase in consumption as there is an increase in demand for goods and services produced by firms. This increase in economic activity may result in injections into the circular flow of income such as through overseas investment. There may however be leakages due to the fact that consumers may spend this money on imports instead.

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Answered by Sanjay S. Economics tutor

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