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ECONOMICS THEME 2 - TOPIC 2.4 - NATIONAL INCOME - Coggle Diagram
ECONOMICS THEME 2 - TOPIC 2.4 - NATIONAL INCOME
National Income
the circular flow of income graph^^
income and wealth
wealth
is a stock of assets e.g house, whereas
income
is a flow e.g money from work
Injections and withdrawals
injections
are monetary additions to the economy
investment (I)
exports (X)
government spending (G)
withdrawals
are where money is being removed from the economy
taxes (T)
savings (S)
imports (M)
if the sum of injections is greater than the sum of withdrawals then the economy will be growing and vice versa
in an equilibrium, injections must be equal to withdrawals so national income remains the same
Equilibrium and level of output
the equilibrium position is where the AD and AS curves intersect
if either AS or AD are shifted then the equilibrium position will change
GRAPHS FOR KEYNSIAN AND CLASSIC
increasing AD + AS
in microeconomics a factor that influenced demand or supply wouldn't effect the other
but in macro its not the same
e.g an increase in investment would increase AD, as well as AS as firms can produce more with machinery
The Multiplier
the multiplier process is the idea that an increase in AD because of injection, can lead to a further increase in national income
multiplier = 1 / (1-MPC)
= 1/MPW
effects on the economy...
there will be a time lag between the injection and its full effect
the overall effect on the economy will depend on the change in AD and the elasticity of the AS curve
the multiplier means growth can occur quicker
effects of the marginal propensities
marginal propensity to tax (MPT) - the increase in taxation following an increase in income
marginal propensity to import (MPM) - the increase in imports following an increase in income
marginal propensity to save (MPS) - the increase in savings following an increase in income
marginal propensity to withdraw (MPW) - the increase in withdrawals following an increase in income - MPW=MPS+MPT+MPM
marginal propensity to consume (MPC) - the increase in consumption following an increase in come
effects of a change in AD
the multiplier leads to an increase in AD but for it to have its desired effect there must be sufficient spare capacity in the economy
if AS is perfectly inelastic such as classical LRAS curve, then the only impact will be to increase price
the more elastic the curve, the more of an effect on output rather than price