2.4/2.5 National Income & Economic Growth Flashcards
Draw a circular flow diagram
Refer to powerpoint
Explain the difference between income and wealth
Income - how much you earn annually (continuous)
Wealth - cumulative total of all assets during someones life
Give the 3 injections of the circular flow of income
Investment
Gov Spending
Exports
Give the 3 withdrawals of the circular flow of income
Saving
Taxation
Imports
Define and formulate the multiplier
An increase in one of the components of aggregate demand which leads to an even greater increase in national income
1/1 - MPC
1/ (MPS + MPM + MPT)
1/ MPW
Show the impact of the multiplier on aggregate demand on a diagram
2 shifts of ad outwards
Explain how a negative multiplier can lead to a ‘downward’ spiral of an economy
Fall in consumer spending - firms make less profit - production is cut and firms lay off workers - consumer incomes fall
What is the difference between actual growth and potential growth
Actual - Increase in the level of real GDP of an economy (short run growth)
Potential - Increases in the productive potential of an economy (long run growth)
Show actual and potential growth on an AD/AS diagram
shifts in lras and ad
Draw the trade cycle on a diagram
actual growth curves and potential straight line, with postive output gap and negative output gap + boom recession and recovery
Define positive and negative output gap
Positive - When actual growth is greater than potential growth
Negative - When potential growth is greater than actual growth
List the characteristics of a boom
Lower Unemployment
More Consumer Spending
Less Gov Spending
Less Spare Capacity
Rising Real Incomes
Rising Sales Of Normal Goods
List the characteristics of a recession
Higher Unemployment
Less Consumer Spending
More Gov Spending
More Spare Capacity
Falling Real Incomes
Rising Sales Of Inferior Goods
