2D

Question 1

Circular flow of income

Answer 1

Households->factors of production->Firms->Factor payments->

Question 2

Injections

Answer 2

Govt spending, exports, investment

Question 3

Withdrawals

Answer 3

Savings, import, taxation

Question 4

How can govt allow positive economic growth of 2% per year

Answer 4

Reduce withdrawals, increasing injections

Question 5

National income

Answer 5

All incomes from FOP are added(from firms to households)

Question 6

National product

Answer 6

All gAnd s produced(by firms)

Question 7

National expenditure

Answer 7

All expenditure on output is added

Question 8

GNP

Answer 8

measures the final value of output or expenditure by UK-owned factors of production whether they are located within the UK or overseas.

Question 9

GDP

Answer 9

Measures the value of output produced within the domestic boundaries of the UK over a given time period.

Question 10

Govt withdrawals from households and injections into firms

Answer 10

TAx and govt spending

Question 11

Banks’ withdrawals from households and injections into firms

Answer 11

Savings and investment

Question 12

The multiplier effect is

Answer 12

The knock-on effect

Question 13

Multiplier effect equation

Answer 13

1/1-MPC or 1/MPW

Question 14

$200m invested times multiplier effect = AD

AD-200m =increase

Answer 14

-New housing project costs 200m, new output into economy.
-Many businesses benefit directly e.g electricians, scaffolders
-Building new houses generate a new flow of factor incomes- including wages and profit, However will rise in income stay in circular flow of income?
-Multiplier effect is strong
Govt investment results in a high multiplier, generally. Normally in developing countries.

Question 15

Classical economists belief

Answer 15

Belive that negative and positive output gaps can only exist in the short run