hnd_經(jīng)濟(jì)學(xué)outcome_2PowerPoint 演示文稿

1、1Diagram of circular flow of incomeenterprise2Injections and withdraws Know definitions, examples, and influence on the circular flow of income. There are 3 sets of injections and withdrawals which can alter the circular flow of income in an economy. Injection (J) is money entering the flow. Injecti

2、ons include Investment, government spending and Exports. Withdrawal (W) is money leaving the flow. Withdrawals include saving, taxation and imports.3Investment In economics, investment is buying and producing capital goods which are not consumed but are to be used for future production. Examples inc

3、lude tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training), etc. More investment means that more production and more employment, and more income circulate and thus economic activity is increased. 4Saving In economics, personal saving

4、has been defined as personal disposable income minus personal consumption expenditure. For example, households deposit money into banks or other financial institutions, or just retain money in treasuries. If a country saves too much of its income this is withdrawn from the circular flow and the flow

5、 will decrease. This means that less income circulates and economic activity is reduced.5Government Spending (G) and Taxation (T)Government taxes both the household and business, so that taxes (T) are withdraw.Example: direct tax (income tax) and indirect tax (sales taxes). In detail, value added ta

6、x (VAT), Capital gains tax, Corporation tax, Environment Affecting Tax, Inheritance tax, Property tax, etc.Increasing taxes will decrease disposable income, thus less income circulates and economic activity is reduced.The government purchases goods and services from the business, and gives transfer

7、payments, so that government spending (G) is injection.(G) includes: investment directly into the economy in the form of grants, business allowances, investment in roads, hospitals, housing, investment in nationalised industries, and the Welfare State, pensions, unemployment benefits and other trans

8、fer payments (TP).Increasing investment and spending by government will increase employment and production, thus more income circulates and economic activity will be increased.6Exports (E) and Imports (M) Exports: goods and services are produced in one country and sold abroad. The payment for them w

9、ill return to the firms in this country. Thus, it is an injection. Example: This increases the circular flow and creates more economic activity in the economy. Imports: goods and services which are bought from other countries and constitute a withdraw from the circular flow of income and enter the f

10、low of income of another country. Example: This decreases the circular flow and causes less economic activity in the economy.7Difficulties of measuring National Income Arbitrary definition of production (what should and should not be measured). Value of service rendered by consumer durable goods.Ina

11、dequate Information. Danger of double counting.Problems in making comparisons over time and between countries.8Arbitrary exclusion A number of items are excluded in the measurement of NI, even though they often do represent real productive effort. Underground activitiesIllegal activitiesUnreported (

12、but legal) activities Non-market activitiesServices of homemakersDIY productionVolunteer services9Other difficulties of measuring NI “Notional rent” of owner-occupied houses is counted in NI like real rent of property for letting, and hence prevents GDP falling. There is danger of double counting su

13、ch as taxes, transfer payments, stock appreciation, and input by others. Inadequate information. The sources from which data are obtained were not specifically designed to provide information for NI calculations. In addition, capital consumption of fixed assets is the major problem, because there is

14、 no accurate figure for real depreciation. Problems in making comparisons over time and between countries.10How to compare growth rates of different countries NI growth rate (%)country 200020012002AB C11Weaknesses of NI as indication of standard of living NI is the nearest

15、 indication of welfare. But NI cannot be accepted solely on its face value. The following qualifications must be made: The rise in general level of price: inflation. Population level changes. The proportion of consumer and producer goods may change. Change in NI may be due to surplus of exports over

16、 imports. Unfair distribution of the wealth. Only a small minority of wealthy people consume the extra goods. Paid services may become more. Environmental problems.12To compare Standards of Living of different countries When used for international comparison, GNP statistics are subject to qualificat

17、ions in addition to those mentioned above. Exchange rates may not reflect accurately the internal purchasing power of currencies. Tastes and needs vary between countries. The proportion of GNP spent on defense and social services varies. Countries vary in average working week, proportion of women wo

18、rkers, number of jobs done by themselves, accuracy of tax returns.13Multiplier Any change in the level of injections or withdrawals will bring about a change in the level of National Income. The change in National Income will be relatively greater than the initial change. This is known as the “Multi

19、plier” effect. Another definition: the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases consumer spending.14Marginal propensity to consume and save Marginal Propensity to Consume (MPC): ratio of the change in consumption to the

20、corresponding change in income. Marginal propensity to save (MPS): ratio of the change in saving to corresponding change in income.15Formulae of MPC and MPS incomeinchangenconsumptioinchangeMPC For example, if income rose from 350 to 400 and consumption rose by 10: 20%5010MPC incomeinchangesavingsin

21、changeMPS If income rises from 350 to 400, consumption rose by 10 so savings must increase by 40: MPS = 80%5040 16Multiplier formula 1 1 M ultiplier (k) = M PS or 1 - M PC A change in an injection can have a multiplier effect. E.g: MPC = 0.6 and the MPS = 0.4, and there is an increase in investment

22、of 1 million, the value of the multiplier will be: 1 million x (1 0.4) = 2.5 million, meaning that 1 million investment increase will increase national income by 2.5 times.17An example for multiplier effect Initial round Assuming MPS = 0.5, K = 2 $10 million 2nd round 10 x 0.5 = 5.0 3rd round 5 x 0.

23、5 = 2.50 4th round 2.5 x 0.5 = 1.25 5th round 1.25 x 0.5 = 0.625 6th round 0.625 x 0.5 = 0.3125 Total $20 million (investment)(Ultimate injection)18Explanation of multiplier effectIncome and employment is generated, output rises, some of the money disappears as a leakage. The remaining money goes ro

24、und the system again, generating more income, employment and output. Again, some more money leaks out.This process continues with income and employment being generated and output increasing. The amounts going round the system get smaller and smaller.19Graph of multiplier effects20Explain nominal and real growth rate NI growth rate (%)country 200020012002AB CHow to explain nominal and real NI Nominal NI is the value of NI in terms