macroeconomics - circular flow of income & multiplier process

Question 1

What do ‘withdrawals’ constitute?

Answer 1

savings, taxes and imports (STM)

Question 2

What do ‘injections’ constitute?

Answer 2

investments, government expenditure, exports (IGX)

Question 3

Draw a diagram to show circular flow of income.

Answer 3

refer to notes app

Question 4

State the formula for multiplier size (k).

Answer 4

k = 1/MPW = 1/MPS + MPT + MPM

Question 5

What does MPW stand for? What constitutes MPW?

Answer 5

marginal propensity to withdraw

MPS, MPT, MPM

marginal propensity to Save, Tax & Import

Question 6

State the relative sizes of Singapore’s MPS, MPT, and MPM (small/large) and provide reasons.

Answer 6

MPS: large
- Asian values of thrift
- mandatory savings scheme –> Central Provident Fund (CPF)

MPT: small
- personal income tax: 24% (highest bracket. VS UK: 45%)
- corporate income tax: 17%

MPM: large
- small, open economy
- highly reliant on imported g&s FOPs because of the lack of raw materials