National income: Practice Questions

In the circular flow of income model, which of the following is classified as a withdrawal (leakage) from the economy?

If the marginal propensity to consume (MPC) in an economy is \( 0.8 \), what is the value of the multiplier?

If the marginal propensity to consume (MPC) increases from \( 0.6 \) to \( 0.8 \) in a simple closed economy, what is the effect on the multiplier and equilibrium national income (assuming AD increases)?

In the circular flow of income model, which of the following is an example of wealth rather than income?

An economy has a marginal propensity to save (MPS) of \( 0.1 \), a marginal propensity to tax (MPT) of \( 0.1 \), and a marginal propensity to import (MPM) of \( 0.05 \). If the government increases spending by \( £10 \) billion, what will be the resulting total change in national income?

In the context of national income, briefly explain the distinction between income and wealth.

In macroeconomics, it is important to distinguish between the concepts of income and wealth within the circular flow model.

(a) Explain the distinction between income and wealth. (2)
(b) Identify one injection into the circular flow of income. (1)