National Income Flashcards
What is the circular flow of income
It’s an economic model to show how money moves and flows between households and firms throughout society and an economy
What is the circular flow of income mainly between
Households and firms
What do firms need from households
Factor resources
What are the factor resources that firms require from households
Land, labour, enterprise and capital
What do the households get i return from firms after giving factor resources
Rent, wages, profit and rental
What is an injection
It is the money that goes into the economy
What are the 3 injections
Investment, gov spending ad exports
What is a withdrawal
Money taken out of the economy
What are the 3 withdrawals
Imports, savings and tax
How can an economy be in equilibrium
When the injections are equal to the withdrawals
What happens if the injections aren’t equal than the withdrawals
The economy will be at a disequilibrium
What happens if withdrawals are greater than injections
The economy will suffer from declining incomes, outputs and expenditure
What does a decrease in income, output and spending lead to
It leads to a decrease of tax and saving levels which causes the leakages to shrink until they equal the injections
What happens if injections are greater than withdrawals
The economy will be expanding leading to economic growth
What happens when an economy grows
What is the marginal propensity to consume (MPC)
Change in consumption following a change in income
What is the MPS
Change in savings following a change in income
What is the formulae for MPC/MPS
Change in total consumption or saving / change in goss income
How many ways can the multiplier be calculated
3
What is the formula for multiplier in terms of MPC
1/MPC
What is the formula for multiplier in terms for MPS MPT and MPM
1/MPS+MPM+MPT
What is the formula for the multiplier in terms of MPW
1/MPW
