2.4 national income

circular flow of income

circular flow of income

a model of the economy which shows the flow of goods, services, and factors and their payments around the economy

national income

the value of the output, expenditure, or income of an economy over a period of time

income

rent, interest, rages, and profits earned from wealth owned by economic actors

wealth

a stock of assets which can be used to generate a flow of production or income, e.g. physical wealth such as factories and machines is used to make goods and services

injections

in the circular flow of income, spending which is not generated by households including investment, government spending, and exports

withdrawals or leakages

in the circular flow of income, spending by households which does not flow back to domestic firms - it incudes savings, taxes, and imports

multiplier ratio

the ratio of the final change in income to the initial change in injection; and the figure multiplied by the original injection to find the final change in income

multiplier effect or process

an increase in investment or other injection will lead to an even greater increase in income (assuming the injection is not determined by income

marginal propensity to consume (MPC)

the proportion of a change in income which is spent; calculation = change in consumption / change in income

marginal propensity to save (MPS)

the increase in saving divided by the increase in income that caused it; calculation = change in savings divided by change in investment

marginal propensity to tax (MPT)

the increase in tax revenues divided by the increase in income that caused them; calculation = change in taxes divided by change in income

marginal propensity to import (MPM)

the increase in imports divided by the increase in income that caused them; calculation = change in imports divided by the change in income