National Income Determination Flashcards
What is the marginal propensity to consume
The proportion of each extra dollar earned that is actually spent on consumption
What is the most important element in determining how much consumption there is in our economy
Income
How do you calculate the MPC
Change in consumption over the change in disposable income
What is the marginal propensity to safe
The proportion of each extra dollar earned that is actually saved for later use
How do you calculate the MPS
Change in saving divided by the change in income
What do the MPC in MPS always add up to
One
What is disposable income
Money after taxes and transfer payments
What is national income
Wages rent interest profits
What are considered the injections
Consumption Investment Government Exports Transfer payments
What are considered the leakages
Savings
Imports
Taxes
The determinants of consumption in order of importance
Changes in wealth Taxes Interest-rate changes Price level changes Expectations
Where is real interest rate set?
In the financial market
What type of money is investment done on?
Borrowed money
What is real interest rate?
The cost of borrowing
What does real interest rate tell us
If an investment will be profitable
What kind of slope does investment demand for money have?
Downward sloping
What is elasticity?
To the extent at which something stretches
What are the non-interest investment determinates
Current economic growth
Expectations
Technology
Tax regulatory environment
What are the net exports determinants
National income between nations
Relative prices between nations
Currency exchange rates
Describe the national income between nations
If national income goes up so does imports making net exports go down
If national income goes down so does imports making net exports go up
What is a strong dollar
Means that when the dollars traded you get more foreign currency
Makes the net exports go down
What is a weak dollar
Means when the dollars traded you get less foreign currency
Makes net exports go up
Everything else remaining equal
Cetaris Paribus
