injections/withdrawels

Question 1

what are the 3 injectons

Answer 1

investment, government expenditure and exports

Question 2

define injection

Answer 2

boost economic growth. Causes multiplier effect to help increase C

Question 3

what are the 3 withdrawals

Answer 3

savings, taxation and imports

Question 4

average propensity to consume formula

Answer 4

consumption / income

Question 5

average propensity to save formula

Answer 5

savings / income

Question 6

average propensity to consume + average propensity to save =

Answer 6

1

Question 7

define margin

Answer 7

anything extra

Question 8

what is marginal propensity to consume

Answer 8

measures how much consumption will change following a change in income

Question 9

marginal propensity to consume formula

Answer 9

change in consumption / change in income

Question 10

marginal propensity to save formula

Answer 10

change in savings / change in income

Question 11

marginal propensity to consume + marginal propensity to save =

Answer 11

1

Question 12

marginal propensity to import formula

Answer 12

change in import / change in income

Question 13

marginal propensity to withdraw formula

Answer 13

marginal propensity to save + marginal propensity to tax + marginal propensity to import

Question 14

marginal propensity to consume + marginal propensity to withdraw =

Answer 14

1

Question 15

factors affecting marginal propensity to consume

Answer 15

income levels (low income high MPC), interest rates (high IR encourages saving), consumer confidence (high confidence encourages spending)

Question 16

what is the multiplier effect

Answer 16

when an injection into the economy leads to a bigger final increase in GDP

Question 17

Multiplier formula

Answer 17

1/1-MPC or 1/MPW

Question 18

what determines the size of the multiplier

Answer 18

% of extra income spent

Question 19

marginal propensity to consume + marginal propensity to withdraw =

Answer 19

1

Question 20

what gives a high multiplier

Answer 20

high MPC / low MPW

Question 21

What does a high multiplier do

Answer 21

makes things like government intervention more likely to succeed

Question 22

Define accelerator

Answer 22

An increase in national income results in a proportionally larger rise in investment

Question 23

Describe the accelerator effect

Answer 23

Demand for capital goods is driven by the demand for products that the firm is supplying in the market . A given change in demand for consumer goods will cause a greater percentage change in demand for capital goods. Therefore an increase in economic growth will have a corresponding larger increase in the level of investment.

Question 24

How does an injection effect the multiplier

Answer 24

Helps increase C, this is accelerated by an increase in I, if national income increases so will I increasing GDP.

Question 25

what is induced investment?

Answer 25

investment as a function of output

Question 26

what is autonomous investment?

Answer 26

investment increases/decreases independently of economic output

Question 27

why might the accelerator effect not work?

Answer 27

1. Firms may not believe the increase in C will last (confidence does not improve).
2. Firms may not need to invest due to them having large amounts of spare capacity (e.g. during a recession).
3. Firms may be encouraged to invest even if real GDP is falling (e.g. new technological advancements).

Question 28

What is the principle of the accelerator effect

Answer 28

a given change in demand for consumer goods will cause a greater percentage change in demand for capital goods