hnd经济学outcome.pptx

Diagram of circular flow of incomeenterpriseInjections and withdrawsKnowdefinitions,examples,and influence on the circular flow of income.Thereare3setsofinjectionsandwithdrawalswhichcanalterthecircularflowofincomeinaneconomy.Injection(J)is money entering the flow.InjectionsincludeInvestment,governmentspendingandExports.Withdrawal(W)is money leaving the flow.Withdrawalsincludesaving,taxationandimports.InvestmentIneconomics,investmentisbuyingandproducingcapitalgoodswhicharenotconsumedbutaretobeusedforfutureproduction.Examplesincludetangibles(suchasbuildingarailroadorfactory)andintangibles(suchasayearofschoolingoron-the-jobtraining),etc.Moreinvestmentmeansthatmoreproductionandmoreemployment,andmoreincomecirculateandthuseconomicactivityisincreased.Saving Ineconomics,personalsavinghasbeendefinedaspersonaldisposableincomeminuspersonalconsumptionexpenditure.Forexample,householdsdepositmoneyintobanksorotherfinancialinstitutions,orjustretainmoneyintreasuries.Ifacountrysavestoomuchofitsincomethisiswithdrawnfromthecircularflowandtheflowwilldecrease.Thismeansthatlessincomecirculatesandeconomicactivityisreduced.Government Spending(G)and Taxation(T)Government taxesboththehouseholdandbusiness,sothattaxes(T)arewithdraw.Example:directtax(incometax)andindirecttax(salestaxes).Indetail,valueaddedtax(VAT),Capitalgainstax,Corporationtax,EnvironmentAffectingTax,Inheritancetax,Propertytax,etc.Increasingtaxeswilldecreasedisposableincome,thuslessincomecirculatesandeconomicactivityisreduced.Thegovernmentpurchasesgoodsandservicesfromthebusiness,andgivestransferpayments,sothatgovernment spending(G)isinjection.(G)includes:investmentdirectlyintotheeconomyintheformofgrants,businessallowances,investmentinroads,hospitals,housing,investmentinnationalisedindustries,andtheWelfareState,pensions,unemploymentbenefitsandothertransferpayments(TP).Increasinginvestmentandspendingbygovernmentwillincreaseemploymentandproduction,thusmoreincomecirculatesandeconomicactivitywillbeincreased.Exports(E)and Imports(M)Exports:goodsandservicesareproducedinonecountryandsoldabroad.Thepaymentforthemwillreturntothefirmsinthiscountry.Thus,itisaninjection.Example:Thisincreasesthecircularflowandcreatesmoreeconomicactivityintheeconomy.Imports:goodsandserviceswhichareboughtfromothercountriesandconstituteawithdrawfromthecircularflowofincomeandentertheflowofincomeofanothercountry.Example:Thisdecreasesthecircularflowandcauseslesseconomicactivityintheeconomy.Difficulties of measuring National Income1.Arbitrarydefinitionofproduction(whatshouldandshouldnotbemeasured).2.Valueofservicerenderedbyconsumerdurablegoods.3.InadequateInformation.4.Dangerofdoublecounting.5.Problemsinmakingcomparisonsovertimeandbetweencountries.Arbitrary exclusionAnumberofitemsareexcludedinthemeasurementofNI,eventhoughtheyoftendorepresentrealproductiveeffort.UndergroundactivitiesIllegalactivitiesUnreported(butlegal)activitiesNon-marketactivitiesServicesofhomemakersDIYproductionVolunteerservicesOther difficulties of measuring NI“Notionalrent”ofowner-occupiedhousesiscountedinNIlikerealrentofpropertyforletting,andhencepreventsGDPfalling.Thereisdangerofdoublecountingsuchastaxes,transferpayments,stockappreciation,andinputbyothers.Inadequateinformation.ThesourcesfromwhichdataareobtainedwerenotspecificallydesignedtoprovideinformationforNIcalculations.Inaddition,capitalconsumptionoffixedassetsisthemajorproblem,becausethereisnoaccuratefigureforrealdepreciation.Problemsinmakingcomparisonsovertimeandbetweencountries.How to compare growth rates of different countriesNIgrowthrate(%)country 200020012002A3.52.61.8B2.54.53.1C1.92.53.2Weaknesses of NI as indication of standard of livingNIisthenearestindicationofwelfare.ButNIcannotbeacceptedsolelyonitsfacevalue.Thefollowingqualificationsmustbemade:Theriseingenerallevelofprice:inflation.Populationlevelchanges.Theproportionofconsumerandproducergoodsmaychange.ChangeinNImaybeduetosurplusofexportsoverimports.Unfairdistributionofthewealth.Onlyasmallminorityofwealthypeopleconsumetheextragoods.Paidservicesmaybecomemore.Environmentalproblems.To compare Standards of Living of different countriesWhenusedforinternationalcomparison,GNPstatisticsaresubjecttoqualificationsinadditiontothosementionedabove.Exchangeratesmaynotreflectaccuratelytheinternalpurchasingpowerofcurrencies.Tastesandneedsvarybetweencountries.TheproportionofGNPspentondefenseandsocialservicesvaries.Countriesvaryinaverageworkingweek,proportionofwomenworkers,numberofjobsdonebythemselves,accuracyoftaxreturns.MultiplierAnychangeinthelevelofinjectionsorwithdrawalswillbringaboutachangeinthelevelofNationalIncome.ThechangeinNationalIncomewillberelatively greater than the initial change.Thisisknownasthe“Multiplier”effect.Anotherdefinition:theadditional shiftsinaggregatedemandthatresultwhenexpansionaryfiscalpolicyincreasesincomeandtherebyincreasesconsumerspending.Marginal propensity to consume and saveMarginal Propensity to Consume(MPC):ratioofthechangeinconsumptiontothecorrespondingchangeinincome.Marginal propensity to save(MPS):ratioofthechangeinsavingtocorrespondingchangeinincome.Formulae of MPC and MPSMultiplier formulaAchangeinaninjectioncanhaveamultipliereffect.E.g:MPC=0.6andtheMPS=0.4,andthereisanincreaseininvestmentof1million,thevalueofthemultiplierwillbe:1millionx(10.4)=2.5million,meaningthat1millioninvestmentincreasewillincreasenationalincomeby2.5times.An example for multiplier effect(investment)(Ultimateinjection)Explanation of multiplier effect1.Incomeandemploymentisgenerated,outputrises,someofthemoneydisappearsasaleakage.2.Theremainingmoneygoesroundthesystemagain,generatingmoreincome,employmentandoutput.Again,somemoremoneyleaksout.3.Thisprocesscontinueswithincomeandemploymentbeinggeneratedandoutputincreasing.Theamountsgoingroundthesystemgetsmallerandsmaller.Graph of multiplier effectsExplain nominal and real growth rateNIgrowthrate(%)country 200020012002A3.52.61.8B2.54.53.1C1.92.53.2How to explain nominal and real NINominal NIisthevalueofNIintermsofpriceprevailingatthetimeofmeasurement.Real NI isthevalueofNImeasuredintermsofpricesprevailinginagivenbaseyear.Growthratesinthetablearenominalgrowthrates.WehavetoknowrealgrowthratetotellwhetherwhichcountrysNIreallygrew.Forgettingrealgrowthrate,weneedtoknowinflationrateorCPI(RPIinUK).Ifinflationrateisbiggerthanthenominalgrowthrate,thentherealNIdidnotincrease.Nominal and real NIInflationincreasesthemoneyvalueofnationalincomebutdoesnotprovideuswithanymoregoodstoconsume.RealNational Incomeisfoundbyapplyingtheequation:RealNationalIncome=StandardofLiving=New wordsParticipant,complex,involve,sampling,substantially