2.4.2-2.4.3 Injections and Withdrawals and Equilibrium Real National Output Flashcards
What are the 3 injections
Investment
exports
Government spending
What are the 3 withdrawals
Saving
Imports
Taxations
When is the circular flow balanced
I + G + X = S + T + M
Invetments + Governemnt spending + exports = saving + taxation + imports
When will national income rise
I + G + X > S + M + T
Injections bigger than leakages
When will the level of national income contract
I + G + X < S + M + T
Leakages are bigger
Equilibrium national income occurs when
Injections = Leakages
Or when AD = AS
How does equilibrium relate to employment
this do not have to occur when there isn’t fully employment
What is short-run equilibrium
Equilibrium is established when AD intersects with AS
E.g the totally planned demand for good/services (AD) is close to actual production
How would you show equilibrium on a diagram
What would the impact on increase Aggregate demand be
How would this be shown on a graph
Cause an expansion in AS and a higher equilibrium level of national output
Will bring a cyclical rise in output and employment
Impact of a fall in Aggregate demand on equilibrium
Known as a recession
How would this be shown on a graph
cause a contraction of aggregate supply and a lower equilibrium level of national output
Impact of increased aggregate supply on equilibrium
How would this be shown on a graph
Cause an expansion of AD and increase equilibrium level of national output
Caused by decreased factor of production + production costs
Impact of decreased aggregate supply on equilibrium - can cause a recession due to supply-side shocks
How would this be shown on a diagram
Cause a contraction in AD and a lower equilibrium level of national output
Caused by rising unit costs and lower business profits
Macro impact for contraction in aggregate supply
- Increased levels of inflation
- Decreased economic growth
- Lower profits/ investments and employment
- worsened trade balance - due to a decline in competitiveness of exports
