1 National income

a) The circular flow of income.

b) The distinction between income and wealth.

 

2 Injections and withdrawals

a) The distinction between injections and withdrawals.

b) Injections:

• investment • government expenditure • exports.

c) Withdrawals:

• savings • taxation • imports.

d) The impact of net injections into, and net withdrawals from, the circular flow of income.

 

3 Equilibrium level of real output

a) The concept of equilibrium level of real national output.

b) Causes of changes in equilibrium real national output, as a result of shifts in AD and/or AS curves.

 

4 The multiplier

a) The multiplier and multiplier process.

b) Marginal propensities and their effects on the multiplier:

• the marginal propensity to consume (MPC)

• the marginal propensity to save (MPS)

• the marginal propensity to tax (MPT)

• the marginal propensity to import (MPM).

c) Calculations of the multiplier using the formulae

    1/(1-MPC) 

     OR

    1/MPW (where MPW = MPS + MPT + MPM)

d) The significance of the multiplier for shifts in AD and the level of economic activity.