2.4 - National income, output and expenditure

Question 1

What is national income?

Answer 1

The total value of all goods and services produced by a country in a year.

Question 2

What is the circular flow of income?

Answer 2

Consumer expenditure
+
Factors of production
________________>__________________
^ l
^ l
Households Firms
l ^
l ^
________________>_________________

                 Goods and services
                                 \+
                Wages, rent, dividends

Question 3

What is the difference between wealth and income?

Answer 3

Wealth - a stock of assets.

income - a flow of money.

Question 4

What is the correlation between wealth and income?

Answer 4

Positive.

Question 5

What are injections?

Answer 5

Additions to the circular flow of income.

Question 6

What are withdrawls?

Answer 6

Leakages out of the circular flow of income.

Question 7

What are the 3 types of injections?

Answer 7

Investment.

Government expenditure.

Exports.

Question 8

What are the 3 types of withdrawals?

Answer 8

Savnings.

Taxes.

Imports.

Question 9

What is the multiplier?

Answer 9

Process by which a change in an injection causes a more than proportionate change in in national income.

Question 10

What is the multiplier equation?

Answer 10

Change in real GDP / change in injection

Question 11

What is the impact of the multiplier on the economy?

Answer 11

Causes an injection to have magnified effect on GDP.

Question 12

What would causes a multiplier to be relatively low?

Answer 12

A high marginal propensity to import.

Question 13

What is the the marginal propensity to consume (MPC)?

Answer 13

The proportion of an increase
income that is spent.

Question 14

What is the equation for MPC?

Answer 14

Change in consumption / change in income

Question 15

How can the multiplier be calculated using MPC?

Answer 15

1 / 1-MPC

Question 16

What is the marginal propensity to save (MPS)?

Answer 16

The proportion of an increase in income that is not spent.

Question 17

What is the equation for MPS?

Answer 17

Change in saving / change in income

Question 18

How can the multiplier be calculated using MPS?

Answer 18

1 / 1-MPS

Question 19

What is the marginal propensity to tax (MPT)?

Answer 19

The proportion of an increase in income that is taxed.

Question 20

What is the equation for MPT?

Answer 20

Change in tax / change in income

Question 21

What is the marginal propensity to import (MPM)?

Answer 21

The proportion of an increase in income that is spent on imports.

Question 22

What is the equation for MPM?

Answer 22

Change in imports / change in income

Question 23

How can the multiplier be calculated using marginal propensity to withdrawal (MPW)?

Answer 23

1 / MPW

Question 24

Explain the multiplier process.

Answer 24

The process begins with an injection into the economy.

This spending forms the income of other people.

Some of this income is spent and some leaks out the circular flow.

Money spent makes up new incomes.

This process continues until the full effects have fed through the economy.