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National Income - Coggle Diagram
National Income
Injections, Withdrawls and equilibrium
Consumers are not the only spenders in the economy. Investment by fimrs, government spending and exports are all injections into circular flow of income. This money is going into firms but was earned by domestic consumers. Injections have the effect of raising income and consumption.
Exports- Is the term given to the value of goods and services demanded by firms and individuals overseas
Government Spending- is the value of expenditure by the state in the economy. This is spending by central and local government
Investment- is the name given to the spending by firms on capital, e.g. new plant or an extension to their factory
A leakage is a withdrawal of funds from the circular flow. It is money which households have earned but does not return in the form of consumer spending
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Imports- is the term given to the amount spent by resident frims and individuals of a country on goods and services produced overseas
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Equilibrium level of national income occurs when total injections into an economy are equal to the total leakages from an economy and total spending in the economy is equal to total income
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Real and National Income
Real national income is when national income has been adjusted to take account of inflation. It is measured at constant prices. An increase in real national income means that a real increase in output has been achieved.
Nominal national income does not take account of any chnages in prices over a period of time. It is calculated using the prices at the time, i.e. current prices. Nominal national income can therefore be missleading as inflation might disguise the real value of output achieved
The Multiplier
An increase into the circular flow of income will increase that circular flow of national income. JMK developed this idea further, suggesting that any injection into the circular flow will increase national income by more than the amount of the injection.
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MPS & MPC
Marginal propensity to save (MPS)- a household can do two things with any extra income. Spend it or save it. At this stage let us assume one leakage-saving
Marginal Propensity to consume (MPC)- As we already have stated any income not saved is spent. The proportion of any extra income spent is known as the MPC.
What is it?
National income is the total value of goods and services produced in the economy over a one year period. It measures the rate of economic growth, when compared with the previous year.
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