4. National Income

Question 1

what is the circular flow of income

Answer 1

the idea that households own all wealth and resources, and provide firms with the factors of production in exchange for rent, wages, interest and profits

Question 2

income

Answer 2

flow of assets

Question 3

wealth

Answer 3

stock of assets

Question 4

the multiplier effect

Answer 4

the idea that an increase in AD because of increased injections into the economy can lead to further increase in national income

Question 5

what is the size of the multiplier determined by

Answer 5

how much of an increase in income people will spend (the marginal propensity to consume)

Question 6

effects of the multiplier

Answer 6

-growth can occur quicker
-injections can be targeted to those with th biggest MPC (this on lower incomes)
-there is a large time lag