2.4 National income Flashcards
1
Q
Define circular flow of income
A
Model of economy which shows the movement of goods and services between households and firms and corresponding payment in money terms
2
Q
Define national income
A
Total spending on goods and services
3
Q
2 equations for multiplier effect
A
1/MPW 1/1-MPC
4
Q
What is the multiplier effect?
A
When an injection lead to an even greater increase in AD
5
Q
Factors that might cause a rise in value of multiplier
A
- A fall in withdrawals from circular flow of income will lead to a rise in the value of the multiplier
- An increase in mpc will cause the value of the multiplier to rise
6
Q
What is fishers quantity theory of money
A
- ↑in injections into economy
- ↑ money supply as more money is flowing around circular flow of income
- ↑ P.L., more individuals chasing the same number of goods and servies
- Inflation
7
Q
Define real income
A
- Income is money received as payment for work
- Real means adjusted for inflation
8
Q
Why is positive output gap temporary
A
High D for scarce factors, increases cost push inflation asd SRAS shifts back to full employment
