2-4 National income

Question 1

Draw a circular flow of income

Question 2

What is an injection?

Answer 2

• Money which enters the economy, gov. spending, investment, and exports.

Question 3

What is a withdrawal?

Answer 3

• Money which leaves the economy, taxes, saving, and imports.

Question 4

What is the multiplier ratio?

Answer 4

• Ratio of the rise in national income to the initial rise in AD.

Question 5

What are the effects of marginal propensities on the multiplier?

Answer 5

• Marginal propensity to consume (MPC)
• Marginal propensity to save (MPS)
• Marginal propensity to tax (MPT)
• Marginal propensity to import (MPM)

Question 6

What is the formula for the multiplier effect?

Answer 6

• 1/(1-MPC)
• 1/MPW

Question 7

What is the formula for the marginal propensity to withdraw?

Answer 7

• MPW = MPS+MPT+MPM