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National income 1
Term | Definition |
---|---|
Circular flow of income | How different economic variables influence the level of national income within an economy. Based on how an open economy operates. Made up of leakages and injections |
Leakage | Causea reduction in the circular flow of income, E,g, tax, savings and imports |
Injections | Lead to an increase in the circular flow of income. These include exports, investment and government spending. |
Investments | Users of capital e.g. machinery. Interest rates are a key factor in investments. High interest rates=lower investments |
Government spending | Political decisions of the gov Competitiveness: Price of exported goods and services compared to the price of goods and services in other countries |
Gov spending- Competitiveness: | Price of exported goods and services compared to the price of goods and services in other countries |
Gov spending: value of euro | If the euro is low in value compared to other currencencies then our esports will be cheaper in those countrys. |
Gov spending- Income levels of other countrys: | Ireland is a small open economy that depends on exports for economic growth. If there is a world recession on this will negatively affect our export earnings. |
Consumption | Amount of spending within an economy |
Imports | Leakages from circular flow of income. So they reduce aggregate demand. If the Irish government was to increase the level of spending in the economy to increase aggregate demand, opposite may happen as Irish people may spend this money imports low ag dem |
Exports | Injection into circular flow of income more=increase in income and an increase in aggregate demand. But Irish gov is encouraging a cost competitive problem so they must try to keep export prices down. |