National Income

Question 1

national income

Answer 1

the total income earned by residents of a country from the production of goods and services, in any given period of time. It is normally measured annually.

Question 2

national income is denoted by

Answer 2

Y= C+I+G+X - M

Question 3

The circular flow of income

Answer 3

the amount of income in circulation at any given time. This income passes from one person to another

Question 4

leakage

Answer 4

anything that decreases the size of the circular flow of income eg imports

Question 5

injection

Answer 5

anything that increases the size of the circular flow of income eg exports

Question 6

a closed economy

Answer 6

is a country that doesnt partake in international trade ie strives to be self sufficient

Question 7

an open economy

Answer 7

is a country that engages in international trade

Question 8

consumption

Answer 8

the level of consumption depends on the level of income, as income increases so does consumption

Question 9

the amount of income spent depends on the

Answer 9

average propensity to consume (APC)

Question 10

APC

Answer 10

the % of income spent on goods/services
formula : total consumption
————————–
total income

Question 11

Marginal propensity to consume (MPC)

Answer 11

the proportion of each additional unit of income that is spent on consumer goods/services
formula : change in consumption
————————————-
change in income

Question 12

what does MPC depend on

Answer 12

level of income
availability of credit from banks
rate of interest
rate of income taxation

Question 13

investment depends on

Answer 13

interest rates/cost of capital goods
business peoples expectations
government expenditure
productive capacity of the economy 
state of technology

Question 14

government spending depends on

Answer 14

the budget. independent of level of income

Question 15

exports depend on

Answer 15

level of incomes abroad
competitiveness
value of the euro
government incentives

Question 16

imports depend on

Answer 16

availability of goods
cheaper foreign goods
levels of income
value of the euro
marginal propensity to import

Question 17

Marginal propensity to import (MPM)

Answer 17

proportion of each additional unit of income spent on imports
higher MPM+ higher rate of imports
formula: change in imports
              --------------------------
              change in income

Question 18

who created the multiplier

Answer 18

John Maynard Keyes

Question 19

the multiplier theory

Answer 19

any initial increase in government spending will cause a much greater increase in GNP due to the fact that one persons expenditure is another persons income

Question 20

the multiplier shows

Answer 20

the precise relationship between an initial injection into the circular flow of income and the eventual increase in national income that results
formula: 1
—————————————
(1-MPC) + MPM + MPT

Question 21

Marginal Propensity to Tax (MPT)

Answer 21

the % of the last increase in income taken in taxation
formula: change in tax
———————–
change in income

Question 22

Marginal Propensity to Save (MPS)

Answer 22

the % of the last increase in income saved
Formula: (1-MPC) or change in savings
—————————-
change in income

Question 23

Transfer payments

Answer 23

payments received for which no factor of production has been supplied/offered.
income received that people did not supply goods/services for
eg social welfare payment, DIRT, PRSI

Question 24

Impact of transfer payments on the multiplier

Answer 24

generally, the person in receipt of a transfer payment has a high MPC, if this is their sole income. They are then likely to spend all the money received.
Consequently,TPs speed up the pace at which money moves in the economy and this has a POSITIVE effect on the multiplier

Question 25

Impact of shocks on the economy

Answer 25

circumstances beyond the control of the irish government will lead to less economic activity or growth.
could be positive or negative

Question 26

trade cycles

Answer 26

recurring patterns of expansion and contraction in the economy

1. Recovery
2. Boom
3. Recession
4. Depression

Question 27

1. recovery

Answer 27

start at a depressed stage
high unemployment, low income
multiplier effect of small investment boosts

Question 28

2. boom

Answer 28

demand and investment peak, full employment

any further increase in demand will cause inflation and decrease demand

Question 29

3. recession

Answer 29

demand continues to fall, investment dries up, incomes fall

production falls, unemployment rises, demand decreases further

Question 30

4. depression

Answer 30

income, demand and production cease falling and level out (trough)
existing capital must be replaced and the cycle restarts

Question 31

positive effects of economic growth

Answer 31

increase employment
improved government finances
effect on balance of payments
improved standard of living
effects on migration
investment opportunities

Question 32

negative effects of economic growth

Answer 32

inflationary pressures
labour shortages
demand for wage increases
increased demand for imports
pressure on housing market
pressure on state infrastructure
immigration/ displacement of population