2.4 National Income Flashcards
What is National Income
the total market value of production in a country’s economy during a certain period of time.
What are Injections
Injections are monetary additions to the economy:
o government spending (G)
o investment (I)
o exports (X)
consumption
What are Leakages/Withdrawals
Withdrawals or leakages are where money is removed from the circular flow of an income:
o taxes (T)
o savings (S)
o imports (M).
What is the Equilibrium position of National Output
Where AD and AS intersect
What is the Multiplier Effect
the idea that an increase in AD because of an increased injection can lead to a further increase in national income
What is the Multiplier Ratio
The Ratio of the final change in income to the initial change in injection
What is the Marginal Propensity to Consume (MPC)
The increase in consumption following an increase in income
What is a Negative Multiplier Effect
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.
How will a Government attempt to stimulate Economic Growth
They will aim to target injection to those with the biggest MPC (lower income households) in order to increase the size of the multiplier
Evaluation to know how the Government effects the economy
-Time Lag
-Impossible to know the size of the multiplier
Marginal Propensity to Save (MPS)
The increase in savings following an increase in income
Formula for Multiplier
1/(1-MPC)
Aggregate Demand
the total expenditure on goods and services within an economy encompassing consumption by households, investments by businesses and net exports
What is an interest Rate?
the reward for saving and the cost of borrowing. It is expressed as a percentage of money saved or borrowed
Current Interest Rate:
5.25% (current base rate)
