Chapter 7- National Income

Question 1

What is national income?

Answer 1

measure of the value of goods and services produced in a year

Question 2

Measures of economic activity:

Answer 2

GDP
GNP- GDP + NPI
National Income: GNP - depreciation

Question 3

Problems with national income assumptions

Answer 3

No distinction between consumer goods and capital goods

Economic growth may be occurring due to population growth

Could happen due to inflation

Question 4

Influences on national income:

Answer 4

increase on aggregate demand (total demand in country): moves to the right

increase on aggregate supply (total supply in country): moves to the right

Question 5

What is income induced consumption?

Answer 5

Proportion of any additional income which will be devoted to consumption is referred to as the marginal propensity to consume or MPC.

Question 6

What is marginal propensity to consume?

Answer 6

how much you are going to spend?

eg if u have salary increase from 100k-105k is ur spending relly going to increase? No.

But if u have a salary increase from 15K-20K then you will spend more

Question 7

Formula for consumer spending

Answer 7

consumer spending= autonomous consumption (can also be known as consumer spending) + (MPC x national income)

Question 8

Injections and withdrawals:

Answer 8

Injections- spending that takes place that is not directly financed by household incomes

Withdrawals- household income that is not spent on domestically produced goods (eg taxes, savings + purchase of imports)

Question 9

Equilibrium Condition:

Answer 9

economy will be stable where national income shows no tendency to change through time, Occurs where planned expenditure (demand) equals national income.

Question 10

Reasons for fall and rises of national income:

Answer 10

Fall- reduction in planned expenditure

Rise- increase in planned expenditure

Question 11

What is investment spending?

Answer 11

spending on creating new assets for the economy.

Can be encouraged by lower interest rates

Question 12

Factors that can affect investment:

Answer 12

improved productivity of capital equipment

fall in the price of capital goods

expectations of higher demand for products in the future

Question 13

What is a fiscal policy?

Answer 13

government’s policy on spending and taxation.

Question 14

What factors influence the demand for exports from foreign consumers?

Answer 14

Competitiveness of domestic industries

Income in foreign countries

The exchange rate

Question 15

Multiplier effect calculation:

Answer 15

1/1-MPC