2.4 - National Income

3 injections into NI

investment, government spending, exports

3 withdrawals from NI

savings, imports, tax

what does this diagram represent

national income

wealth=

the value of the total assets owned by an individual

income =

a flow of money recieved by factors of production e.g. wages, rent profit etc.

when injections are greater than withdrawals the amount of money in the circular flow of income ___________

increases

when injections are smaller than withdrawals the amount of money in the circular flow of income _________

decreases

when injections < withdrawals there is a ____ __ ___

fall in GDP

when injections > withdrawals there is ________ ______

economic growth

when does short-run equilibrium occur?

when AS and AD intersect

the multiplier effect=

when an initial injection in the circular flow of income causes a bigger final increase in real national income

MPC =

marginal propensity to consume

MPW =

marginal propensity to withdraw

MPW is made up of…

MPS+MPT+MPM  

MPS =

marginal propensity to save

MPT =

marginal propensity to tax

MPM =

marginal propensity to import

two formulae to calculate the multiplier:

1/(1-MPC) and 1/MPW

total spending (forumla) =

multiplier x initial

the _____ the MPC the greater the ____ of the multiplier

greater, value

the multiplier is based on the idea that…

one individual’s spending is another individual’s income

successive rounds of spending =

larger final increase in national income