National Income

Vocabulary practice flashcards covering Chapter 11: National Income, including the circular flow of income, macroeconomic aggregates (GDP, GNP, GNI, GNDI), calculation methods, propensities, and the multiplier effect.

National Income

the income accumulated by the per meant residents of a country from current economic activity

Recession

A fall in gross domestic product (GDP) in two successive quarters (i.e. two three-month periods).

Circular Flow of Income

The flow of receipts and expenditure between companies and households, illustrating how money moves through households, firms, the government, financial institutions, and foreign markets.

Leakages

Withdrawals of money from the circular flow of income that result in a reduction in aggregate demand, specifically taxes, savings, and imports.

Injections

Additions of money into the circular flow of income that result in an increase in aggregate demand, specifically government expenditure, investment, and exports.

Expenditure Method

A method measuring the total amount of money spent on final goods and services in a country during the year, calculated as $Y = C + I + G + (X - M)$.

Output Method

A method of measuring national income where the output figures of all firms in the economy are added together to determine the total value of national output, avoiding the inclusion of intermediate goods.

Double Counting

An error that occurs when expenditure on intermediate goods is erroneously counted alongside the final output rather than calculating only the value added.

Income Method

A method of calculating national income by adding all incomes paid to those supplying factors of production, including company profits, remuneration of employees, and rent of dwellings.

Transfer Payments

Payments received for which no factor of production has been supplied or offered, such as social welfare payments like child benefit.

Secondary Benefits

Non-cash perks included under the income method, such as the value of private use of a company car or health insurance paid by an employer.

Investment (Capital Formation)

The production of capital goods or capital formation, such as constructing a factory or expanding business premises.

Nominal GDP

Gross domestic product evaluated using current market prices, without adjusting for the effects of price inflation or deflation.

Real GDP

Gross domestic product measured at constant prices to eliminate the effect of price changes and reflect actual changes in physical output.

Hidden Economy

Unrecorded economic activity (also known as the shadow economy) that goes unreported and is not accounted for in official national income statistics.

Patent

A legal protection that gives an inventor the sole right to produce an invention they created.

Trademark

A form of intellectual property that legally protects distinctive brand names (e.g. Coca-Cola, McDonald's).

Copyright

A form of intellectual property protection applying to original creative works, such as books, music, and films.

Trade Secret

A proprietary formula, process, or production method kept strictly confidential within a business and not known to external entities.

Inversion Deals

Restructuring transactions in which a company with an Irish headquarters merges with or acquires a foreign company, causing the foreign firm's earnings to be recorded as Irish earnings.

Gross Domestic Product (GDP)

The total value of all goods and services produced by Irish- and foreign-owned factors of production located in the domestic economy only.

Gross National Product (GNP)

The total value of goods and services produced by Irish-owned factors of production, whether operating within the domestic economy or abroad.

Net Factor Income from the Rest of the World

The difference between income earned by domestic factors of production abroad that is sent home minus income earned by foreign factors in the domestic economy that is repatriated abroad.

Gross National Income (GNI)

The total domestic and foreign income earned by the resident population of a country, calculated as GNP at current market prices plus EU subsidies minus EU taxes.

Gross National Disposable Income (GNDI)

The total income available to a nation for gross saving and consumption, derived by adding net current transfers to Gross National Income.

Average Propensity to Consume (APC)

The proportion or percentage of total income that a household or individual spends directly on consumption.

Marginal Propensity to Consume (MPC)

The proportion or fraction of each additional unit of income that is spent on consumption, defined as $\text{MPC} = \frac{\Delta C}{\Delta Y}$ or $\text{MPC} = 1 - \text{MPS}$.

Marginal Propensity to Save (MPS)

The fraction or percentage of extra income that is saved out of an increase in income, defined as $\text{MPS} = \frac{\Delta S}{\Delta Y}$ or $\text{MPS} = 1 - \text{MPC}$.

Marginal Propensity to Tax (MPT)

The fraction or percentage of extra income paid in taxes out of the last increase in income, defined as $\text{MPT} = \frac{\Delta T}{\Delta Y}$.

Marginal Propensity to Import (MPM)

The fraction of extra income that is spent on imported goods and services, defined as $\text{MPM} = \frac{\Delta M}{\Delta Y}$.

The Multiplier

The measure showing the precise relationship between an initial injection into the circular flow of income and the eventual, larger increase in national income resulting from that injection.

Closed Economy

An economy that does not engage in international trade with other countries, where the simple multiplier formula is $\frac{1}{\text{MPS}}$.

Open Economy

An economy that relies heavily on international trade, meaning its multiplier calculation must account for the marginal propensity to import ($\text{MPM}$).

Business Cycle

The regular fluctuations in economic output and activity observed over time, typically categorized into four phases: recovery, boom, recession, and depression.