Studied by 0 people
Looks like no one added any tags here yet for you.
Circular Flow of Income
A model that illustrates the flow of money through the economy between firms, households, and the government.
Withdrawals
Leakages from the circular flow, such as savings, taxes, and import expenditure, that reduce funds available for economic activity.
Injections
Money entering the circular flow, including investments, government spending, and exports that boost economic activity.
Equilibrium in the Circular Flow
Occurs when total withdrawals equal total injections, maintaining a stable economy.
Keynesian Theory of Consumption
Aggregate demand is the primary driver of economic activity, determining production and influencing national income.
Marginal Propensity to Consume (MPC)
The fraction of additional income that is consumed; it measures how consumption changes as income changes.
National Income (Y)
The total income earned by a nation's residents in the production of goods and services.
Multiplier Effect
The ratio of change in national income to the change in injections; indicates how initial spending can lead to increased economic activity.
Endogenous Variables
Variables that are explained within the model and depend on other variables.
Exogenous Variables
Variables that are not explained by the model but are taken as given.
Government Expenditure (G)
Spending by the government on goods and services to provide public services.
Investment (I)
Spending by firms on capital goods like machinery and infrastructure.
Consumption Function
A relationship between consumption and disposable income, often represented as C = α + βY.
Tax Function
A function that represents how tax payments depend on income.
Accelerator Effect
The relationship between changes in national income and induced investment, suggesting that an increase in national income leads to increased investment.
Government Objectives
Reasons or goals that guide government spending and fiscal policy in both the short and long run.
Note 
Flashcard (22)