Topic 5 - National Income And Macroeconomic Equilibrium Flashcards
Circular flow of income
A model of an economy showing the movement of goods and services between households and firms and their corresponding payments in money terms
Withdrawals
Where money flows out of the circular flow in the forms of savings, taxes, and imports thereby reducing AD
Injections
Where money flows into the circular flow in the form of investment, government expenditure and exports thereby increasing AD
Income
A flow concept and is the amount of income that is earned during a period of time.
Wealth
A stock concept and is the accumulation of assets such as property or shares.
Macroeconomic equilibrium
Occurs where AD is equal to AS and real GDP is not changing
Multiplier
The ratio of a change in equilibrium real income to the autonomous change that brought it about; if defined as 1 divided by the MPW
Multiplier effect
The process by which any change in a component of AD results in a greater final change in real GDP
Marginal propensity to save (MPS)
The proportion of additional income that is saved.
Marginal propensity to tax (MPT)
The proportion of additional income that is taxed
Marginal propensity to import
The proportion of additional income that is spent on imported goods and services
Marginal propensity to withdraw (MPW)
The proportion of additional income that is withdrawn from the circular flow - the sum of marginal propensities to save, tax and import.
