2.4/2.5 National income/Economic Growth

Question 1

Name 3 injections in to the circular flow of income and explain why they increase its level

Answer 1

Investment-Spending by businesses on capital leads to better quality goods/services
Gov. spending- subsidies or increased spending on benefits lead to more income and more spending
Exports- Lead to greater profits so more re-investment

Question 2

what is the formula for the multiplier

Answer 2

1/MPW or 1/1-MPC

Question 3

what is MPC

Answer 3

Marginal propensity to consume- proportion of income spent

Question 4

What is MPW

Answer 4

Marginal propensity to withdraw = MPS+MPT+MPM

Question 5

Define the multiplier effect

Answer 5

a given change in a particular input, such as government spending, causes a larger change in an output, such as gross domestic product.

Question 6

Define positive output gap

Answer 6

actual growth > predicted growth

Question 7

Define negative output gap

Answer 7

actual growth < predicted growth

Question 8

What is MPS

Answer 8

Marginal propensity to save- Proportion of income saved

Question 9

What is MPT

Answer 9

Marginal propensity to tax- Proportion of income taxed

Question 10

What is MPM

Answer 10

Marginal propensity to import- Proportion of income spent on imports