2.4 National income Flashcards
What is meant by the circular flow of income?
The demonstration of how money flows from producers to households and back in an endless loop.
What is the difference between income and wealth?
Income is the amount a person makes but wealth is the amount of money their possessions is worth.
What are the three types of injections?
Investment, Government spending and exports.
What are the three types of withdrawals?
Saving, Taxation and imports.
What is the multiplier effect?
An increase in one of the components of AD which leads to an even greater increase in national income.
What is the multiplier effect formula?
1 / 1-MPC or 1 / MPW
What does MPC mean?
Marginal propensity to consume- the extra income spent in proportion to actual income.
What does MPS mean?
Marginal propensity to save- the proportion of extra income that is saved.
What does MPT mean?
Marginal propensity to tax- The proportion of extra income that is taxed.
What does MPM mean?
Marginal propensity to import- The proportion of extra income that is spent on imports.
What does MPW mean?
Marginal propensity to withdraw- the proportion of extra income that is withdrawn.
How does the multiplier effect have an impact on the future GDP?
The larger the multiplier the larger the increase in GDP will be.
