The Determination of National Income

The Circular Flow of Income is the flow of receipts and expenditure between companies and households
Income (Y) = consumption (C) + investment (I) + gov. expenditure (G) + exports (X) - imports (M)
Average Propensity To Consume is the proportion of total income spent
What Does Consumption Depend On?
1. Level of Income
2. Rate of Interest: If rates of interest are low, consumers will borrow and hence spend.
3. Availability of Credit: If banks are willing to offer more loans, then spending will increase.
4. Rate of Income Taxation
What Does Investment Depend On?
1. Cost of Capital Goods
2. Businesspeople's Expectations: If businesspeople are optimistic about the future, investment may increase.
3. Productive Capacity of the Economy
4. State of Technology
What Do Exports Depend On?
1. Level of Incomes Abroad
2. Competitiveness: If Irish products are cheaper than foreign alternatives, demand for Irish Exports will rise.
3. Value of the Euro
What Do Imports Depend On?
1. Marginal Propensity to Import (MPM)
2. Foreign Prices vs. Domestic Prices
3. Levels of Incomes
4. Value of Euro
5. Availability of Goods
Multiplier : the number of times an injection results in an increase in income
Factors that Affect the Savings Rate in The Irish Economy
1. Future Expectations For the Econnomy
2. Price Levels
3. Level of Income
4. Level of Taxation
Marginal Propensity to Import
1. 1 / MPS + MPM
2. It is the percentage of money spent on imported goods out of the last increase in income

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	Created by james liew about 9 years ago