National Income

Question 1

What is circular flow of income (2)

Answer 1

Firms pay households for FoPs = national income
National income = spent on G/S = expenditure

Question 2

Injections to circular flow (3)

Answer 2

Exports
Investment
Gov spending

Question 3

Withdrawals of circular flow (3)

Answer 3

Saving
Imports
Taxes

Question 4

If injections greater or smaller than withdrawals

Answer 4

Injections bigger = expenditure bigger than output = should increase output

Question 5

What is multiplier effect

Answer 5

Injections into economy which leads to an increase income

Question 6

Formula for multiplier effect

Answer 6

1 / 1 - MPC (marginal propensity of consumption)
MPC + MPW = 1
So k = 1 / MPW

Question 7

Formula of national income increase

Answer 7

Size of injection times (x) multiplier

Question 8

Avergae prospensity to consume/ save AND MPC/MPS formula (2)

Answer 8

Consumption/savings divided (/) by total income
Change in c/s divided by change in income