2.4 National Income Flashcards
What is the circular flow of income?
A model of the income which shows the flow of goods, services and factors and their payments around the economy
what are injections into the CFOI?
Government spending, exports, investments
What are withdrawals into the CFOI?
Taxation, imports, savings
What is income?
Flow of money that goes to the FOP’s
Profit, wages, dividends
What is wealth?
Stock of assets
Savings, property, bonds
What is national income?
Value of income paid by firms to households, in return for FOP
What is national expenditure?
Value of spending by households on goods and services
What is national output?
Value of goods and services from firms to households
What is the multiplier?
An initial increase into the CFOI will eventually lead to an even bigger national income
What is MPC?
Proportion of any extra income spent on goods and services
What is MPS?
Proportion of any extra income saved
What is MPT?
Proportion of any new income paid as a tax
What is MPM?
Proportion of any new income spent on imports
What is the multiplier effect?
When an initial injection into the circular flow is made, the actual change in national income is greater than the initial injection
What is macroeconomic equilibrium?
Occurs where AD=AS
