2.4 topic sheet Flashcards
What is meant by national flow of income?
It shows how the different sectors of the economy link together eg the fact workers are employed by firms and then the worker is paid wages.
illustrate the concept of national flow of income using a diagram:
Firms and households in the centre.
On the right with an arrow going in (injection):
Exports, investment, gov spending.
On the left with an arrow going out (leakage)
Taxes, savings, imports.
Define equilibrium level?
Where aggregate demand quals aggregate supply.
Draw an AS and AD diagram.
see notes.
Identify 3 newsflashes that would shift AD to the right:
Any components of AD would have to increase.
A decrease in interest rates.
America going into a boom.
the minimum wage increasing.
Draw AD shifting to the left.
identify the new equilibrium
see notes.
Identify 3 newsflashes that would shift AS to the left?
Anything that would increase the cost of production.
A natural disaster that destroys crops.
A new minimum wage.
If the cost of energy rose.
If VAT would increase.
Identify 3 newsflashes that would shift AS to the left?
Anything that would increase the cost of production.
A natural disaster that destroys crops.
A new minimum wage.
If the cost of energy rose.
If VAT would increase.
Show AS increasing to the left.
Mark the new equilibrium .
see notes.
Identify newsflashes that would shift AS to the right?
Anything that would decrease the cost of production and increase the productive potential in an economy.
Immigration of skilled workers into a country.
If wages in the economy fell (labours cost decrease)
If there was an innovation in an economy.
Draw AS shifting to the right and draw on new equilibrium.
see notes.
Give an example on how the multiplier works in the economy?
The government invests 10 million into increasing the wages of nurses.
The wages then spend the increased wages in a supermarket. Which increases the revenue of the supermarket.
This means that the supermarkets will increase orders from suppliers which cause the revenue for suppliers to increase.
Give an example on how the multiplier works in the economy?
The government invests 10 million into increasing the wages of nurses.
The wages then spend the increased wages in a supermarket. Which increases the revenue of the supermarket.
This means that the supermarkets will increase orders from suppliers which cause the revenue for suppliers to increase.
What is the formula for the multiplier?
1/1-mpc
What are the other ways of showing the formula of the multiplier?
1/MPW
1/MPW=MPS+MPT+MPI
