National Income Flashcards

1
Q

Injections to the circular flow of income

A

Government spending, investment, exports

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2
Q

Withdrawals from the circular flow of income

A

Taxes, savings, imports

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3
Q

Classic LRAS and AD

A

As LRAS is perfectly inelastic, a shift in AD will increase price/output in the short-run but in the long-run output won’t change only inflation

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4
Q

Keynesian LRAS and AD

A

Impact of a shift in AD depends on elasticity of curve - during a recession output low so government should try increase AD

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5
Q

Investment effect

A

Investment increases AD, but also increases LRAS as firms use machinery to increase production

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6
Q

Multiplier

A

An initial injection into the economy leading to a further increase in income/growth

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7
Q

What is the correlation between MPC and the multiplier?

A

Greater the MPC, greater the size of the multiplier

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8
Q

What is the issue with the multiplier?

A

Can also have a negative multiplier

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9
Q

Multiplier effect on economy

A

Quicker growth, can also target those on lower incomes to boost MPC - but has a time lag

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10
Q

MPM

A

Marginal propensity to import

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11
Q

What is the circular flow argument,?

A

One person’s consumption is another’s income

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12
Q

What is a rise in income’s effect on all marginal propensities?

A

All increase, but lower income rise will increase MPC more and higher income rise will increase MPS more

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13
Q

What is MPW?

A

Marginal propensity to withdraw ( MPW = MPS+MPT+MPM)

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14
Q

Multiplier calculation

A

1 divided by 1- MPC or 1 divided by MPW

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15
Q

What are the conditions for a multiplier to work?

A

Multiplier only works if there is sufficient spare capacity - if not just causes inflation - greater spare capacity , more elastic so less price change and more output change

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