2.4 National income

Question 1

What is the difference between wealth and income?

Answer 1

Income is a flow of assets, often financial, and wealth is a stock of assets.

Question 2

What are injections and what are the three types?

Answer 2

They are ways that money is added into the circular flow of income, they are government spending, investment and exports

Question 3

What are withdrawals and what are the three types?

Answer 3

They are ways in which money leaves the economy. They are savings, imports and taxation.

Question 4

How can economic growth be signified via the circular flow of income?

Answer 4

It can be shown by injections being greater than withdrawals as it means more money is coming in than coming out so national income is increasing.

Question 5

What is the multiplier?

Answer 5

The multiplier is a concept that states an initial injection into the economy, will have a proportionally different effect on national income. This proportion is the multiplier.

Question 6

What is the formula for the multiplier?

Answer 6

1/(1-MPC) or 1/MPW where MPW = MPM + MPS + MPT