Injections and Withdrawals Flashcards
What are the 3 injections in the circular flow of income?
- Investment (I)
- Government Expenditure(G)
- Exports(x)
What do injections do for the economy?
They BOOST the economy
What are the 3 withdrawals in the circular flow of income?
- Savings(S)
- Taxation(T)
- Imports(I)
What do withdrawals do for the economy?
They reduce the size of National Income/GDP
What does propensity mean?
propensity means likelihood
calculation for average propensity to consume
Consumption/Income : C/Y
calculation for average propensity to save
Savings/Income : S/Y
What should always equal to 1? (propensity)
the answer for propensity to consume and propensity to save ADDED TOGETHER should equal 1
What does the term margin refer to?
margin refers to anything extra
What does marginal propensity to consume (MPC) measure?
MPC measures how much consumption will change following a change in income
Equation for MPC?
MPC= Changes in consumption/Changes in income
Equation for MPS
MPS = changes in savings/change in income
In the real world what are the 2 leakages that reduce the marginal propensity to consume?
MPM= Marginal Propensity to Import(changes in income/changes in imports
MPT=Marginal propensity to tax
calculation for MPW(Marginal propensity to withdraw)
MPW=MPS+MPT+MPM
In the real world what does MPC+MPW equal?
MPC+MPW always equals 1
