2.4 National Income

Question 1

What is the circular flow of income

Answer 1

Shows the flow of money in an economy

Question 2

What do HOUSEHOLDS provide FIRMS

Answer 2

Land , Labour, Capital
Expenditure of g/s

Question 3

What do FIRMS provide HOUSEHOLDS

Answer 3

Goods and Services
Wages, rent , profit, interest

Question 4

3 INJECTIONS into the economy

Answer 4

Govt spending (G)
Investment (I)
Exports (X)

Question 5

3 WITHDRAWALS from the economy

Answer 5

Savings (S)
Tax (T)
Imports (M)

Question 6

Multiplier effect

Answer 6

Injection into the economy that has a greater return than the investment

Question 7

How will an increase in interest rates affect the circular flow of income

Answer 7

Increased savings->reduced consumption and investment

Question 8

Multiplier equation

Answer 8

1 1
_____ or _______
(1-MPC) MPWithdrawals

Question 9

Tax, Interest, Exchange Rate effects on the Multiplier

Answer 9

Tax increases-> multiplier reduces

Interest increases-> savings increase-> consumption decreases->multiplier reduces

Exchange rate appreciates-> imports increase-> multiplier increases