Simplification Flashcards
what is national income
How much money is made by everyone in a year?
what are the 3 ways to count national income?
- output method
- income method
- expenditure method
what is the output method?
Add up the stuff we produce
what is the income method?
Add all the wages, rents, profits people earn
what is the expenditure method?
Add up what people spend on goods/services.
what is GDP?
Total income in Ireland (even by foreign companies)
what is GNP?
GDP + money Irish people earn abroad - money foreigners earn in Ireland
what is GNI?
GNP adjusted for prices
what is GNDI?
GNI + money we get from abroad (like EU grants)
what is the formula for the Keynesian Income Model?
Y=C+I+G+(X−M)
what does C stand for? (K)
What people spend (Consumption)
what does I stand for? (K)
What businesses spend (Investment)
what does G stand for? (K)
What the government spends
what does X-M stand for?
Exports minus Imports (foreign trade)
what does Y stand for? (K)
national income (how much money we’re all earning)
what is the formula for disposable income (Yd)?
Yd=Y−T+TR
what does Y stand for? (Disposable income)
income
what does T stand for? (disposable income)
taxes
what does TR stand for (disposable income)?
transfers (like welfare model)
what is the formula for the consumption function?
C=a+cYd
what does a stand for? (consumption function)
base spending (even with no income, people still buy stuff)
what does c stand for? (consumption function)
marginal propensity to consume (MPC) = how much of each €1 we spend
what does Yd stand for? (consumption function)
disposable income
when is the economy in balance?
AE=Y (aggregate expenditure=income)(what people plan to spend is equal to what is being produced)
what is the formula for the multiplier? (no taxes)
Multiplier(α)= 1
—
1-mpc
what is the idea of the multiplier?
if the government spends €1, it becomes more than €1 in the economy!
what is the formula for the multiplier (with taxes)?
α= 1
———–
1−c(1−t)
what are injections (money added)?
Investment, Gov’t Spending, Exports
what are leakages (money taken out)?
Saving, Taxes, Imports
when is the economy happy?
injections=leakages
classical Economics:
-market fixes itself
-always full employment
-prices/wages flexible
-focus on supply
Keynesian Economics:
-government needs to help
-can have unemployment
-prices/wages can be sticky
-focus on demand
