National income

Question 1

What is wealth?

Answer 1

The sum of all assets in an economy

Question 2

What is the wealth effect?

Answer 2

the value of property increasing, resulting in increase confidence and increased spending.

Question 3

What is the multiplier ratio?

Answer 3

The ratio of a change in equilibrium real income to the injection that brought it about. (the number of times a change in income exceeds the change in net injections that caused it)

Question 4

What is the multiplier inversely proportional to?

Answer 4

The marginal propensity to withdraw.
1
——–
MPW

Question 5

What is the marginal propensity to withdraw?

Answer 5

A measure of how much of any extra pound earned is saved, taxed or spent outside the economy on imports

Question 6

What is the formula for the multiplier?

Answer 6

MPS + MPT + MPM

OR

  1  -------------  (1 - MPC)

Question 7

What is marginal propensity to consume?

Answer 7

A measure of how much of any extra pound earned is spent within the economy

Question 8

How does the multiplier influence AD?

Answer 8

The value of the multiplier influences the shift of the AD as it measures how much an extra pound earned is re-spent within the economy.