E2.4 - national income 0.0 / 5 ? Economicsnational incomeASEdexcel Created by: alisha55555Created on: 11-05-19 17:55 CIRCULAR FLOW OF INCOME the flow of money between households and firms. the concept that the income of one is the expenditure of another and vice versa. 1 of 13 INJECTIONS INTO THE CIRCULAR FLOW OF INCOME Government spending. Investment. eXports. leads to a higher amount of money in the circular flow- leading to higher GDP- higher economic growth 2 of 13 LEAKAGES TO THE CIRCULAR FLOW OF INCOME iMports. Tax. Saving. leads to a lower amount of money in the circular flow of income, decreasing real GDP and lowering economic growth 3 of 13 INCOME flow of money 4 of 13 WEALTH stock of assets. sum of all assets in an economy. in the UK most wealth is held in the form of housing, 60%. 5 of 13 THE MULTIPLIER RATIO ratio of change in real income to the initial injection. change in real income / change in net injection 6 of 13 POSITIVE MULTIPLIER when an initial increase in an injection leads to a greater final increase in real GDP 7 of 13 NEGATIVE MULTIPLIER when a decrease in an injection leads to a greater final decrease in GDP 8 of 13 CALCULATING THE MULTIPLIER 1/MPM+MPT+MPS. 1/1-MPC. 9 of 13 MARGINAL PROPENSITY TO CONSUME (MPC) the proportion of extra income that is spent in the economy. bigger the MPC, bigger the multiplier. if MPC is 0.6, 60% of extra income is spent. 10 of 13 MARGINAL PROPENSITY TO SAVE (MPS) the proportion of extra income that is saved. bigger the MPS, smaller the multiplier 11 of 13 MARGINAL PROPENSITY TO TAX (MPT) proportion of extra income that goes to the government. larger the MPT, smaller the multiplier 12 of 13 MARGINAL PROPENSITY TO IMPORT (MPM) the proportion of extra income that is spent on imports. larger the MPM, smaller the multiplier. 13 of 13
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