theme 2: national income Flashcards
national output meaning
value of the flow of goods and services from firms to households
national expenditure
value of spending by households on goods and services
national income meaning
value of flow of output of goods and services produced in an economy over a period of time
what is income
flow of money that goes to the factors of production
what is wealth
stock of assets
examples of withdrawals / leakages
money leaving the economy
tax
savings
imports
example of injections
money entering the economy
government spending
investment
exports
injections higher than leakages
leakages higher than injections
economy growing- +ME
economy shrinking- -ME
equilibrium of national output
AD=AS
withdrawals = injections
what happens if AD increases
price level and level of national output increases
what happens if AS
price increases and national output decreases
multiplier effect meaning
Initial injection into the circular flow of income causes a greater increase in real national income
multiplier effect process
increases in AD caused by injections (X, G, I) can lead to an increase in national income
new demand = injection of income = more jobs made = higher average incomes = more spending = more incomes created
one person’s spending is another persons income
MPC meaning
MPS meaning
MPT
MPM
equations for multiplier
ME= 1/1-MPC
ME=1/MPW
evaluation of the multiplier effect
value of MPC can change over time
time lag
impacts on GDP depends on the relative position with the AS curve
leakages can cancel effect
hard to know the size
can cause inflation if close to full capacity
ME has a bigger effect if there is lots of spare capacity and MPW is low/ MPC is high
