National income and macroeconomic equilibrium Flashcards
What two things flow from households to firms in the circular flow of income, expenditure and output?
- expenditure on goods and services
- factors of production
What two things flow from firms to households in the circular flow of income, expenditure and output?
- goods and services
- factor incomes
What does the circular flow of income, expenditure and output model of households and firms only ignore that makes it too simplistic?
- government
- international trade
- flow between firms
- saving
In the expandedcircular flow of income, expenditure and output model, what three items are classed as withdrawals?
savings, taxation, imports
In the expandedcircular flow of income, expenditure and output model, what are classed as injections?
investment, government spending, exports
Define* income*
earnings during a period
Define wealth
accumulated assets built up from past income
Give some figures indicating distribution of wealth in UK
- wealthiest 10% hold about 40% of wealth
- least-wealthy 50% hold about 10% of wealth
In the UK, which is more unevenly distributed - income or wealth?
wealth
Why does unevenly distributed wealth lead to unevenly distributed income?
because wealth creates an income so wealthiest get more income
What is equal in macroeconomic equilibrium?
aggregate supply and aggregate demand
Define multiplier
ratio of a change in equilibrium real income to the autonomous change that brought it about
What is the formula for the multiplier?
1 / mpw
What does the size of the *multiplier *depend on?
size of leakages and withdrawals in the form of savings, imports, direct taxes
Will higher imports reduce or increase the multiplier?
reduce
Will higher saving reduce or increase the multiplier?
reduce
Define the marginal propensity to import (mpm)
proportion of additional income that is spent on import of goods and services
Define the marginal propensity to withdraw (mpw)
proportion of additional income that is withdrawn from the circular flow
What is the formula for the marginal propensity to withdraw (mpw)
mpw = mps + mpm + mpt
Define the marginal propensity to tax (mpm)
proportion of additional income that is taxed
What is the formula linking marginal propensity to consume and marginal prepensity to withdraw?
mpc = 1 - mpw
If domestic supply is inelastic, what effect will this have on the multiplier?
reduced multiplier as more spent on imports
