EconomicsCode 9708
The circular flow of income
What this topic asks you to be able to do
- how the multiplier works: what the multiplier is; the formulae for the multiplier and how to work it out in a closed and in an open economy, both with and without a government sector; working out the average and marginal propensities to save (aps and mps), consume (apc and mpc) and import (apm and mpm), and the average and marginal tax rates (art and mrt); determining national income from AD and the income approach through the multiplier process; working out how a change in AD alters national income via the multiplier
- what makes up Aggregate Demand (AD) and what determines each part: the consumption function, covering consumer expenditure both autonomous and induced; the savings function, covering savings both autonomous and induced; investment, both autonomous and induced; the accelerator; government spending; and net exports, meaning exports minus imports
- the level of national income at full employment and the level at which equilibrium is reached, along with inflationary and deflationary gaps