The following table shows the level of National Income (Y), Consumption (C), Investment (I), Government Spending (G), Exports (X) and Imports (M) for 2013 and 2014 - Leaving Cert Economics - Question 5 - 2014

The Marginal Propensity to Consume (MPC) can be calculated using the formula:

$MPC = \frac{\Delta C}{\Delta Y}$

Using the changes in Consumption and National Income from 2013 to 2014:

• Change in Consumption (ΔC): From €50,000 to €56,000 → ΔC = 56,000 - 50,000 = 6,000
• Change in National Income (ΔY): From €80,000 to €90,000 → ΔY = 90,000 - 80,000 = 10,000

Thus,

$MPC = \frac{6,000}{10,000} = 0.6$

Therefore, the MPC is 0.6.

To calculate the level of Imports (M) in 2014, we use the formula:

$Y = C + I + G + X - M$

Substituting known values for 2014:

$90,000 = 56,000 + 15,000 + 34,000 + 110,000 - M$

This simplifies to:

$90,000 = 215,000 - M$

Rearranging gives:

$M = 215,000 - 90,000 = 125,000$

Thus, the level of Imports in 2014 is €125,000.

To find the Marginal Propensity to Import (MPM), we use the relationship:

$MPM = \frac{\Delta M}{\Delta Y}$

From 2013 to 2014, assume imports were €120,000 in 2013 and €125,000 in 2014:

• Change in Imports (ΔM): ΔM = 125,000 - 120,000 = 5,000
• Change in National Income (ΔY): ΔY = 90,000 - 80,000 = 10,000

Thus,

$MPM = \frac{5,000}{10,000} = 0.5$

Therefore, the MPM is 0.5.

Multinational Companies (MNCs) provide numerous economic benefits to a small economy like Ireland. These include:

Employment / Improved Standard of Living

MNCs employ a significant number of people, contributing to local economies and improving living standards. They often provide competitive salaries and job security.

Balance of Payments Contribution

MNCs positively affect the Balance of Payments by exporting goods and services, which increases foreign exchange earnings for the country.

Technology Transfer

The presence of MNCs introduces advanced technologies and best practices which can enhance local industries and contribute to overall productivity.

Investment in Research & Development

By investing in R&D, MNCs enhance educational institutions and lead to innovations that can further boost the economy.

Regional Development

MNCs may contribute to regional development by establishing operations in less affluent areas, thus promoting balanced economic growth.

Gross Domestic Product (GDP)

GDP is defined as the total output produced by an economy within a specific period, calculated as the sum of all goods and services produced by domestic factors of production.

Gross National Product (GNP)

GNP represents the total output produced by the residents of a country, regardless of whether the production occurs domestically or abroad.

GNP = GDP + Net Factor Income From Abroad (NFIA)

Analysis

While both GDP and GNP are essential measures of economic activity, GNP may be more relevant for Ireland. Since many MNCs bring in profits that are repatriated abroad, GNP accounts for these outflows, providing a clearer picture of the economic impact on local residents. This is significant as GNP places emphasis on economic benefit derived from domestic factors, providing insight into the welfare of residents.

Population Distortions

National income figures can be misleading if population changes are not accounted for. For example, if a country experiences a slow population growth, per capita income might appear higher than what’s real.

Changes in Price Levels

Inflation can distort national income statistics. For example, higher prices may inflate GDP without a corresponding increase in real economic activity.

Shadow Economy

The existence of an unregistered economy is not reflected in official national income figures. This hidden economic activity means the real level of economic activity is likely underestimated.