2.4 National income

Question 1

2.4.1 A)
What does notional income measure

Answer 1

The total value of goods / services provided in a year

Question 2

2.4.1 A)
How do households interact with circular flow of income

Answer 2

Gives firms factors of productions (labour)
Goods/services by households
(Check notes for diagram)

Question 3

2.4.1 A)
How do firms interact with circular flow of income

Answer 3

spend money on factors of income (wages, rent)
(Check notes for diagram)

Question 4

2.4.1 B)
Distinction between income and wealth

Answer 4

income is seen as a flow of money whereas wealth is seen as a stock of assets

wealth can be measured at any particular point in time , whereas income is weakly / monthly .

Question 5

2.4.1 B)
How can a consumer increase wealth

Answer 5

Sacrifice current consumption this can be seen as opportunity cost
wealth often generated income

Question 6

2.4.2 A)
What is an injection into circular flow of income

Answer 6

money entering the economy
(government spending , investment , export)

Question 7

2.4.2 A)
What is an withdrawls into circular flow of income

Answer 7

money leaving the economy
(saving , taxation , imports)

Question 8

2.4.2 A)
What can have big impacts on circular flow of income and what can it result it

Answer 8

Policy decisions can cause economic growth .

Question 9

2.4.4 A)
What is the multiplier effect

Answer 9

An increased in AD caused by an ^ injection can lead to further inc in national income

for ex if 100m spent on invesment and lead to another 90m being spend by those effected by the investment MPC will be 0.9

Question 10

2.4.4 A)
How is the size of the multipler determined

Answer 10

By how much of an ^ in income people spend (MPC).
V leakage ^ mpc ^ multipler

Question 11

2.4.4 B)
Why is the multipler able to work
What other types of multiplier can you have

Answer 11

due to circlur flow of income one persons spending is anothers income
can also have neg multipler due to withdrawls

Question 12

2.4.4 C)
What effects does multipler have on the economy

Answer 12

faster economic growth
will be time lag as ppl dont spend money straight away

Question 13

2.4.4 D)
What is MPC
What is MPS
What is MPT
What is MPM
What is MPW

Answer 13

Marginal propensity to consume, ^ comsumption derived from ^ in income
Marginal propensity to save, ^ save derived from ^ in income
Marginal propensity to tax, ^ tax derived from ^ in income
Marginal propensity to import, ^ import derived from ^ in income
Marginal propensity to withdraw ^ leakages derived from ^ in income
MPW = MPS + MPT + MPM

Question 14

2.4.4 E)
What is the mulitplier forumla

Answer 14

MPW = MPS + MPT + MPM
1/(1-MPC) = 1/MPW

EX: MPC = 0.9 on 50k gov spendinging whats the total

1/(1-0.9) = 10
10*50k = 250k

Question 15

2.4.4 F)
The significance of the multiplier for shifts in AD

Answer 15

Multipler = ^ AD but must be sufficent spare capacity

IF AS is perfectly inelastic then only affect will be ^ in price
^ Es V price ^ output.