2.4 National Income

Question 1

Circular flow of income

Answer 1

a model of the economy in which the exchanges are represented as flows of money, goods + services, etc. between economic agents

Question 2

3 leakages (MTS)

Answer 2

imports, tax, saving

Question 3

3 injections (XGI)

Answer 3

exports, govt spending, investment

Question 4

What do classical economists prefer? demand side or supply side policies

Answer 4

SUPPLY SIDE

Question 5

What do keynesian economists prefer? demand side or supply side policies

Answer 5

DEMAND SIDE

Question 6

Multiplier effect

Answer 6

an injection of new spending (exports, government spending or investment) can lead to a larger increase in final national income (GDP)

Question 7

Negative multiplier effect

Answer 7

a withdrawal from the economy could lead to an even further fall in income, decreasing economic growth and possibly leading to a decline in the economy

Question 8

Multiplier formula

Answer 8

1/(1-MPC) or 1/MPW