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2.4/2.5 - Coggle Diagram
2.4/2.5
Positive output gap
Occurs when actual growth is greater than potential growth
Negative output gap
Occurs when actual growth is below potential growth
Multiplier effect-An increase in one of the components of aggregate demand which leads to an even greater increase in national income
A drop in consumer or business spending may lead to a ‘negative multiplier effect’
Multiplier calculation= 1/1-MPC
Marginal propensity to consume (MPC)
The proportion of extra income that is spent
Marginal propensity to save (MPS)
The proportion of extra income that is saved
Marginal propensity to tax (MPT)
The proportion of extra income that is taxed
Marginal propensity to import (MPM)
The proportion of extra income spent on imports
Marginal propensity to withdraw (MPW)
All withdrawals added together 🡪 MPS + MPT + MPM
National income is the total output of an economy
It also accounts for withdrawals that decrease the circular flow of income
Saving, taxation, imports
It accounts for injections that increase the circular flow of income
Investment, government spending, exports
Causes of short run economic growth
Anything that effects AD=C+I+G+(X-M)
Causes of long run economic growth
Immigration, more work participation – i.e. More labour
Better skills/education – i.e. Better labour
Greater levels of investment – i.e. More capital
Technological advance – i.e. Better capital
Discoveries of new resources – i.e. More land
Improved extraction techniques – i.e. Better land
Actual Growth-
Increase in the level of real GDP of an economy
Potential Growth-
Increase in the productive potential of an economy
