2.4 National Income

• What is national income?

  Total value of all the goods and services produced by a country in a year
• What is the circular flow of income?

  An economic model showing the flow of goods and services, the factors of production and their payments between households and firms within an economy
• What is income?

  Flow of money received by factors of production (measured over a period of time)
• What is wealth?

  Value of total assets of worth owned by an individual, firm or country (stock concert and can be measured at any particular point in time)
• What are injections?

  Additions to the circular flow of income
• What are examples of injections?

  Investment, government spending, exports
• What are withdrawals?

  Leakages out of the circular flow of income
• What are examples of withdrawals?

  Savings, taxes, imports
• What is equilibrium?

  Balancing point where there is no tendency to change
• What is the multiplier effect?

  An increase in investment or other injection will lead to an even greater increase in income
• What is the multiplier process?

  Occurs when an initial injection into the economy, or circular flow of income, causes a larger final increase in the level of real national income/output.
• What is the marginal propensity to consume?

  The proportion of a change in income (the margin) that will be spent on consumption rather than being saved
• What does the marginal propensity to withdrawal depend on?

  MPS, MPT, MPM
• What variables are impacted by the multiplier?

  Spare capacity, unemployment, economic growth, inflation, exchange rates
• What are the equations to the multiplier effect?

  1/1-MPC, 1/(MPS+MPM+MPT), 1/MPW