8) National Income

• What do households provide to firms?

  • Labour
  • Spending in products
• What do firms provide to households?

  • Wages
  • Products
• In a closed economy, national income is the same as national expenditure.
• What is wealth?

  The value of assets
• What is income?

  The flow of money
• Describe the wealth effect:

  • The value of assets increase
  • Wealth increases
  • People feel wealthier
  • People spend more
• Give three injections into the economy:

  • Investment
  • Government expenditure
  • Exports
• What is an injection?

  An addition to the circular flow of income
• What is a withdrawal?

  A reduction and decrease from the circular flow of income
• Give three withdrawals from the circular flow of income:

  • Savings
  • Taxes
  • Imports
• What is a multiplier?

  The process by which an injection into the economy causes a greater change in the national income
• What does MPC mean?

  The marginal propensity to consume as income increases
• How do you calculate MPC:

  Change in consumption / Change in income
• How can you calculate MPS from MPC?

  1 - MPC
• What is the simple multiplier?

  1 / MPS
• What is MPW?

  Marginal Propensity to Withdraw:

  MPS + MPT + MPI
• What is the complex multiplier?

  1 / MPW