Flow Of Income

Autonomous items in the Balance of Payments (BOP) refer to those transactions that are undertaken independently of the BOP position, such as exports, imports, and foreign investments. These are driven by profit motives or international obligations. Accommodating items are those transactions that are undertaken to balance the BOP, such as borrowing from the IMF or drawing on foreign exchange reserves. These aim to offset deficits or surpluses in the autonomous account. Example: Export of goods is an autonomous transaction, while using foreign exchange reserves to bridge a deficit is an accommodating transaction.

This statement is correct. The disposition phase in the circular flow of income represents the distribution of factor incomes: Firms pay rent for land, wages for labor, interest for capital, and profits to entrepreneurs. Households receive these factor incomes and use them for consumption, savings, or paying taxes. This phase completes the cycle of income generation and expenditure, ensuring that income earned in production is re-circulated in the economy. Hence, the statement accurately describes the flow of factor income in the economy.

\text{When planned spending exceeds planned output, inventories will decrease because more goods are being sold than expected. This will result in a rise in national income as firms increase production to meet demand.}