2.4.1 - 2.4.4 national income

Question 1

what makes up the national output

Answer 1

all the goods and services produced by firms

Question 2

national income is

Answer 2

the value of the output of an economy of an economy over a period of time

Question 3

national expenditure

Answer 3

the value of the spending of money gotten from national income on goods and services that firms create

Question 4

circular flow of income formula

Answer 4

national output = national income= national expenditure

Question 5

two types of flow for flow of income

Answer 5

physical flow of real things
monetary flow

Question 6

physical flow of real things

Answer 6

goods and services land labour and capital

Question 7

monetary flow

Answer 7

the money that pays for the physical things

Question 8

circular flow suggests that

Answer 8

as long as households keep spending what they earn and firms keep using their revenues to produce more goods using the same inputs then national output won’t change

Question 9

how is the economy’s circular flow of income affected

Answer 9

injections and withdrawals

Question 10

injections come in the form of

Answer 10

exports, investments, and gov spending they go directly to firms

Question 11

withdrawals come in the form of

Answer 11

imported purchases, savings, taxes and can be made by households or firms

Question 12

economy is in equilibrium when

Answer 12

injections and withdrawals are equal

Question 13

if national output, income and expenditure increased

Answer 13

injections into the circular flow are greater than withdrawals
,,increased outputs by firms

Question 14

if national output, income and expenditure decreased

Answer 14

withdrawals from circular flow are greater than injections
,, decreased output by firms

Question 15

multiplier effect

Answer 15

can cause the economy to grow by a greater amount than the size of the injection

Question 16

size of the multiplier effects depends on

Answer 16

the rate at which money leaks from the circular flow
(the bigger the leakage the smaller the multiplier effect because the quicker money leaves the circular flow)

Question 17

wealth

Answer 17

the total value of all the assets owned by individuals or firms in an economy

Question 18

income

Answer 18

the flow in the economy

Question 19

wealth is a

Answer 19

stock of assets that can be used to generate an income over a period of time
resources aren’t currently being used in the circular flow of income but could be used at some point

Question 20

households own and households supply

Answer 20

the wealth in the economy
these are the factors of production

supply factors of production to firms and receive income as reward
ex. rent for land

Question 21

firms purchase

Answer 21

factors of production from households
and use them to produce goods and services and sell them and receive sales revenue

Question 22

injections … into the circular flow

Answer 22

add money

Question 23

withdrawals or leakages …. into the circular flow

Answer 23

remove money and reduce its size

Question 24

injections>withdrawals
injections <withdrawals

Answer 24

economic growth
fall in real gdp

Question 25

injections represent

Answer 25

new income

Question 26

change to any of the factors that influence .... will increase/decrease the relative size of the circular flow of income

Answer 26

gov spending investment consumption net exports

Question 27

real natiinal output equilibrium occurs when

Answer 27

AD = AS

Question 28

classical economists believe that

Answer 28

the economy will always return to its full potential level of output and all that will change in the long-run is the average price level

Question 29

Keynesian economists believe that

Answer 29

the economy can be in the long run equilibrium at any level of output

Question 30

multiplier ratio

Answer 30

ratio of change in real income to the injections that created the change

Question 31

multiplier process is based on the idea that

Answer 31

one individuals spending is another individuals income ex- increased consumption now extra income ,, more spending

Question 31

multiplier can work in reverse when

Answer 31

injections are reduced ,, downwards multiplier effect

Question 32

marginal propensity to consume Mac is

Answer 32

the proportion of additional income that is spent

Question 33

marginal propensity to save mps is

Answer 33

the proportion of additional income that is saved

Question 34

marginal propensity to tax mpt is

Answer 34

the proportion of additional income that is paid in tax

Question 35

marginal propensity to import mpm is

Answer 35

the proportion of additional income that is spent on imports

Question 36

MPC=

Answer 36

change in consumptions/ change in income change C/ change Y

Question 37

MPS=

Answer 37

change in saving/ change in income change S/ change Y

Question 38

MPT=

Answer 38

change in taxes/ change in income change T/ change Y

Question 39

MPM=

Answer 39

change in imports/ change in income change M/ change Y

Question 40

withdrawals example=

Answer 40

MPS/MPT/MPM

Question 41

calculate multiplier from MPC

Answer 41

1/(1-MPC)

Question 42

calculate multiplier from withdrawals

Answer 42

1/MPW or 1/(MPM+MPS+MPT)

Question 43

MPW is

Answer 43

marginal propensity to withdraw

Question 44

smaller the withdrawal the

Answer 44

larger the value of the multiplier

Question 45

the greater the MPC the

Answer 45

greater the value of the multiplier

Question 46

factors that change the multiplier

Answer 46

factors that affect disposable income taxes interest rates exchange rate confidence in economy

Question 47

if taxes increased what happens to multiplier

Answer 47

multiplier decreases

Question 48

if interest rates increased what happens to multiplier

Answer 48

multiplier reduced saving increases decreased consumption

Question 49

if exchange rates increased what happens to multiplier

Answer 49

multiplier decreases imports increase

Question 50

if confidence increased what happens to multiplier

Answer 50

multiplier increases increased consumption

Question 51

why is it important to government to know value of multiplier

Answer 51

use it to judge the likely economic growth caused by increased spending

Question 52

what causes time lags

Answer 52

what happens when successive rounds of income to work through the economy

Question 54

multiplier effect def

Answer 54

where initial change in ad is greater than final impact on equilibrium national income