2. Circular Flow, Multiplier and Accelerator

What is the Circular Flow of Income

What are the Injections

Investment

Government Spending

Exports

What are the Withdrawals/Leakages

Savings

Taxation

Imports

Economic Growth in terms of Injections and Withdrawals

Increasing Economic Growth: I+G+X > S+T+M

Decreasing Economic Growth: I+G+X < S+T+M

Macroeconomic Equilibrium: I+G+X = S+T+M

GDP Formula from Circular Flow of Income

Output = Income = Expenditure

What is the Multiplier Effect

Proces by which any changes in the components of AD will lead to an even greater change in national output

Multiplier Formula

What is the Accelerator Effect

Changes in investment can be directly linked to changes in the rate of GDP growth