Econ ALEVEL summary notes (A GRADE)

2.4.1 National income




2.4.2 Injections and withdrawals
2.4.3 Equilibrium levels of real national output
2.4.4 The multiplier

-​ National income: total spending on goods and services
-​ Circular flow of income: money flows around the economy between
consumers/households and firms
-​ Output gap: measure of the difference between actual and potential growth/GDP

Withdrawals / Leakages
money flowing out of the circular flow of income
-​ saving
-​ imports
-​ taxation
-​ increase withdrawals = decreased national income
-​ a decrease in withdrawals increases the value of the multiplier

Injections
money flowing into the circular flow of income
-​ government spending
-​ exports
-​ investment
-​ increase injections = increased national income
-​ a decrease in injections decreases the value of the multiplier
-​ increase in mpc causes the value of the multiplier to rise

Multiplier & AD
measures the knock on effects when an injection or withdrawal changes
Injects of money from investment goes round the circular flow of income
-​ one person's spending is another person's income
-​ e,g construction workers will eat lunch in local cafes / stay in local hotels
Multiplier & unemployment
If unemployment falls:
-​ consumption & investment rises
-​ further rounds of increases in disposable income