The following table shows the level of National Income its Consumption, Investment and Export components at the end of periods 1 and 2, and the level of Imports at the end of period 1 - Leaving Cert Economics - Question 5 - 2009

To find the savings at the end of period 2, we can use the following formula:

$GNP = C + S$

We already know GNP = €50,000 and Consumption (C) = €39,000.

Substituting these values gives us:

$50,000 = 39,000 + S$

This simplifies to:

$S = 50,000 - 39,000 = 11,000$

Therefore, the level of savings at the end of period 2 is €11,000.

The Marginal Propensity to Consume (MPC) can be calculated using the change in consumption and the change in income:

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

Where:

• Change in Consumption (ΔC) = €39,000 - €30,000 = €9,000
• Change in National Income (ΔY) = €50,000 - €40,000 = €10,000

So,

$MPC = \frac{9,000}{10,000} = 0.9$

Thus, the MPC is 0.9.

The Size of the Multiplier (k) can be calculated using the formula:

$k = \frac{1}{1 - MPC}$

Setting $MPC = 0.9$:

$k = \frac{1}{1 - 0.9} = \frac{1}{0.1} = 10$

Thus, the size of the Multiplier is 10.

Ireland's status as a small open economy affects its ability to influence aggregate demand largely due to its dependency on imports and exports. In a small open economy, imports can act as a leakage and reduce the effectiveness of domestic spending in stimulating economic growth. Conversely, increases in exports can boost economic activity, but such increases depend significantly on foreign demand.

In the Circular Flow of Income diagram, households receive income from firms in return for supplying factors of production, and they spend this income on goods and services. However, the influence of government on aggregate demand is limited. If the government increases spending, some of that spending may go to imports, effectively reducing the intended impact on domestic economic activity.

In summary, while government policy can influence domestic economic factors, the interconnectedness of a small open economy with global markets can constrain its effectiveness in stimulating aggregate demand.

When using Gross National Product (GNP) at current market prices for comparing average standards of living over time, several limitations arise:

• Population Changes: If GNP grows at a slower rate than the population, the GNP per head can decrease, affecting the perceived average standard of living.
• Inflation: An increase in prices will automatically increase GNP in nominal terms. Therefore, it is better to consider GNP at constant market prices to adjust for inflation.
• Employment Rates: If a person is unemployed rising GNP per head will not necessarily mean that this person's average standard of living is rising.
• Employment and Sectors of Economy Adjustments: Rising GNP may also lead to shifting in how wealth or income is distributed; hence, standard of living can vary widely across different socioeconomic groups.
• Exclusions from GNP: The informal economy and activities not counted in GNP, like household labor, can lead to discrepancies in understanding the true standard of living.
• Nature of Expenditures: The structure of government expenditure and public sector services can influence GNP measurements; not accounting for 'public goods' and services may understate living standards.

These factors combine to indicate that GNP at current market prices alone may not adequately reflect changes in living standards over time.