8. (a) The diagram below represents the Circular Flow of Income in a closed economy without Government - Leaving Cert Economics - Question 8 - 2008

Refer to the provided diagram and label the lines as follows:

1. Payment for factors of production.
2. Supply/commodities or goods & services.
3. Spending/payment.

Households provide factors of production (labor, land, capital) to firms in exchange for income. Firms, in turn, utilize these factors to produce goods and services, which they supply back to households. The households then purchase these goods and services with the income received, creating a continuous cycle of economic activity.

C stands for Consumption, I stands for Investment, G stands for Government expenditure, X stands for Exports, and M stands for Imports.

To find the National Income, we use the formula:

$Y = C + I + G + X - M$ Substituting the values:

$Y = €1,200m + €500m + €300m + €40m - €80m$

Calculating gives:

$Y = €1,200m + €500m + €300m + €40m - €80m = €1,960m$

GNP stands for Gross National Product.

For 1998:

$\text{GNP per person} = \frac{GNP at market prices}{Population} = \frac{€2,500 million}{5 million} = €500$

For 2008:

$\text{GNP per person} = \frac{GNP at market prices}{Population} = \frac{€2,700 million}{6 million} = €450$

1. Lower standard of living: A lower GNP per person implies that individuals may have less income to spend on goods and services, leading to a reduced quality of life.

2. Reduced savings: With decreased disposable income, households are less capable of saving. This can lead to lower investments in education, health, and other areas crucial for economic growth.