2.4 National Income Flashcards

1
Q

What is the circular flow of income?

A

A model of the economy which shows the flow of goods and services and their payments around the economy between households and firms

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2
Q

What are injections?

A

Where money flows into the circular flow of income through, investment, government spending and exports

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3
Q

What are withdrawals?

A

Where money flows out of the circular flow of income through, savings, taxation’s and imports

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4
Q

What are the 3 injections into the circular flow of income?

A
  • investment
  • government spending
  • exports
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5
Q

What are the 3 withdrawals from the circular flow of income?

A
  • imports
  • saving
  • tax
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6
Q

How does economic growth occur?

A

When injections are bigger than withdrawals

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7
Q

How does GDP fall in the economy?

A

When withdrawals are bigger than injections

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8
Q

What is income?

A

The amount that is earned during a period

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9
Q

What is wealth?

A

An accumulation of assets, such as property or shares

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10
Q

In the circular flow of income, what should be equal?

A

Total expenditure should be equal to total income and total output

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11
Q

Where does the equilibrium point occur in a macro-economy?

A

The equilibrium point should equal the point of real national output

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12
Q

What is the multiplier ratio?

A

The rate of change in national output compared to the injection that caused it

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13
Q

How do you calculate the multiplier?

A

1 / MPW

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14
Q

What is the MPM?

A

Marginal Propensity to Import

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15
Q

What is the MPT?

A

Marginal Propensity to Tax

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16
Q

What is MPW?

A

Marginal Propensity to Withdraw

17
Q

How do you calculate the multiplier using the marginal propensity to consume?

A

1 / (1-MPC)

18
Q

What is the MPS?

A

Marginal Propensity to Save

19
Q

MPW is equal to what?

A

MPW = MPS + MPT + MPW

20
Q

A positive multiplier?

A

An injection will cause economic growth

21
Q

A negative multiplier?

A

An injection will cause a fall in real. GDP

22
Q

A large, positive multiplier would have what effect on the economy?

A

An injection would lead to a big increase in real GDP

23
Q

A large multiplier ratio, will have what effect on the shift of the AD curve?

A

A large multiplier ratio will shift AD significantly more to the right than a smaller multiplier ratio