 Hello everyone. You are very welcome to this evening's Positive Economics webinar. I am, as usual, going to let everybody in and see the numbers are climbing there, which is wonderful to see, as always. Now, I also know as because we've looked at the analytics that there is a lot of people that look at this webinar afterwards online through the recording, so you too, of course, are very welcome whenever and wherever you're joining from. So just making sure that everybody has joined and that they have gained access. Of course, as always, if you have any questions, feel free to pop them into the Q&A, pop them into the chat, or of course, if you're watching this on YouTube afterwards, put them into the comment section. You can reach out to me on Twitter. I'm at SusanHays.com. You can find me on Instagram. I'm at SusanHays.com. There's loads of ways to find me indeed. So if you do have any questions arising from what I put forward to you today, please do, of course, let us know. Okay, so let's get down to business then. The circular flow of income. I think that this is one of the most explanatory areas of economics. I remember when I first learned about this, and I might have said this to a couple of you before, who I might have met in previous webinars or in person at some stage. And I actually didn't study economics in school. Instead, I studied economics in college. I did financial maths and economics in Galway. And when I was in that course, that was the first time I had actually studied economics. It wasn't available as a subject of my school. I did accounting in school. And I remember discovering the circular flow of income and thinking, oh, right, now I really understand how all of this works. So personally for me, I think it's a really interesting way to understand how an economy works. But particularly, as we'll talk about tonight as well, when you understand the marginal propensity to consume, the marginal propensity to import, the marginal propensity to tax, when you understand things like that as well, it can give you an excellent insight into its individual policy actions or strategic actions or individual actions that government or a person that you might take or also that a business might take as well. And then in addition, of course, what I always do during these webinars is I also want to bring you up to date on the latest news. So literally, as I was almost switching on this webinar, I saw the latest headline about the income tax and all of the other tax heads as well that has been reported today in the Irish time. So I'm going to bring you up to date on some things that have been happening. And finally, I am of course aware that we are now moving steadily towards exam season. But for any of you who are watching this, as you are preparing, let's say for your economics project, for the upcoming deadline for anybody who's currently maybe in fifth year, or if you're looking at this in your sixth year, of course, what I always want to do as well is make sure and show you some data sources if you need any secondary research, then at least you'll know where to find them. So now that I have told you what we are going to do, let's get in and do it. So I'm going to share my screen. And I am going to start off here with this slide, which is called, of course, the circular flow of income. And as I have already done, I'm going to have already pointed out what we're going to talk about tonight. I am going to absolutely focus on the circular flow of income in the Irish economy and the data that I'm going to show you again relates to the Irish economy. But if you have any questions as regards any other economy or any other data that you want to find, et cetera, of course, please do feel free to let me know. Okay. So first of all, John Maynard Keynes said the circular flow of income is a continuous movement of money between producers and consumers, providing the basis for a market economy. So at this stage, I just want to check in with you that we have got a couple of concepts totally straight. Number one, what do producers do? Well, producers make things that we as consumers want to buy. So I am sitting here in front of you this evening in my office in Dublin. And I am the author of a textbook called Positive Economics that I wrote with two other people, Brian and Trudy. And that book was produced and you, whether you're a teacher or whether you're a student or whether you're a parent or whether you're somebody interested in economics, might be somebody that would consume that product. You would buy that product. Specifically, of course, what happens when it comes to making anything or producing anything are the four factors of production. Land, labour, capital and enterprise. And that is the key thing is that producers use the four factors of production, land, labour, capital and enterprise to make things that consumers can then go on and buy. Now, when it comes to the consumer, who is the consumer? Well, in the context of the circular flow of income, the consumer could be you or me as an individual. So earlier on today, I bought this bottle of water as an individual. Earlier on today, I also paid a bill because I run a business and the business was paid out in that bill. So therefore, we as a business were a consumer of that particular product. Similarly, of course, as well, we as a business and I as an individual, both are taxpayers. So whether that might be paying income tax for the salaries of those who work for us or indeed paying income tax on my own salary, that also, of course, makes me a consumer to the government. So I'm paying money to the government. So in all of those cases, as you can see, there is a connection between producers and consumers. A consumer is somebody that is going to spend money and I am going to turn off my email because we don't want any more any more things like that now. And we don't want any more of that either. Now, done. So as a result, being a producer and a consumer, as in order for money to move between the two, what we need to do is to make sure that as an individual consumer or as a business consumer, is that I am spending money on something that I'm getting that I'm getting value for. There are, of course, one other concept that I'm just going to briefly touch on, and that is transfer payment. Because sometimes we get money for without providing a factor of production for. So as an example, perhaps if I was, if I had kids, which I don't. So if I had children, I the government would transfer money to me in the form of children's allowance for the children that I would have, that I don't have, but if I did have them, that is an example of a transfer payment. The government is providing money to me, would be providing money to me. And in that case, I'm not providing land. So it's not that they're renting anything off me. I'm not providing labor for the government. I would imagine if I had children that would be plenty labor, I'd be providing but not the government. It's not that I am lending them money and that they're paying me an interest rate for. And it's not that I'm running a business whereby I'm generating profit from it. That's an example of a transfer payment. Similarly, a transfer payment would be if I was in receipt, let's say, of carers allowance, let's say that I was taking care of my granny, for example. And I was to leave, I was to leave work. So I was to leave employment in order to take care of my granny. And in that case, of course, there is labor being provided, but it's not that the government is paying me directly. It is that it is providing me with money so that I can go and do something in that context. Now, that one is what might be seen as a transfer payment is not paying me for a job. It is because it comes in under social welfare. Okay. Now that we have that all squared up. Here is the case study that I want to work with because I think it's important when it comes to the circular flow of income. It's really important to understand how all of this really affects me and in this case, you. So let's meet Alan. So Alan is a 16-year-old secondary school student who has a part-time job at a local hotel. He earns 20 euros an hour, so I've made sure that Alan is earning more than the minimum wage. And I've also made sure that he's, because he's 16, I'm making sure that he's also getting higher because there's a difference in the minimum wage depending on what age you are. So I've given him a good wage here. He's earning 20 euros an hour. He works for 14 hours a week on average and that includes the summer when he works full-time. So he works a lot less than that during school time. He also gets tips from people eating in the restaurant. And he, I want to point out as well, he gets tips from people eating in the restaurant and some of those are local and some of those are international tourists. That's going to be key when we get to it in little while. He spends his money on meeting his friends for pizza. He likes to buy clothes online and specifically he likes to buy clothes from retailers in the UK and Spain. And he also spends money on public transport. Alan does pay tax on the money that he earns. So he does. And I can show you how I worked that out. I made sure that he earned enough that he was paying tax for the purpose of this case today. So he does pay tax on the money that he earns and he saves about 20% of his take-home pay. So of what's left, he saves about 20% of his take-home pay. So now he pays a tiny little bit in tax on that money. The rest of us, so broadly speaking, if we want to keep the math simple, he spends about 80% of his money. Now Alan would love to go traveling around the US for six months after he qualifies an economist. I did, of course, give him the job title of an economist, but he may need to borrow 5,000 euros for that in the future. Now every single element of what I have put forward there all ties into the circular flow of income, every single little bit of it. And that's why I shaped the story in the way I did. So let's move on and let's look at the model of what the circular flow of income is. And what I'm going to do is I'm going to go forwards and backwards, forwards and backwards, forwards and backwards between Alan and the circular flow. Okay. So first of all, if we start off here up here at the very, very top. So first of all, household incomes is spent on the output of firms. So what is it that Alan spends his money on? Well, let's go back and see. Alan spends his money on meeting his friends for pizza. Now if he's going to meet his friends for pizza, let's think about that. So what are the four factors of production that are actually provided by the pizzeria? Well, first of all, the place that he goes, like he physically goes to meet them in a pizzeria, he goes to meet them there. So that is land that needs to be used and is created with a view to letting people like Alan come in, spend his money and buy a pizza. Secondly, labor, of course, then the people who are making the pizza, as well as the servers who are serving the pizza to him. And then capital is money needed to be invested in order to open it in the first place. And then there is some machinery, et cetera, and equipment in there. Let's say like, oh, what's those ovens? Were you sliding the pizza? Fire, side ovens? No, no, flame ovens, I think is, anyway, sorry, now if you're screaming out the name to me, I can't hear you. But all of it. So that would be capital that would need to be invested. And of course, the entrepreneur who created the pizzeria in the first place also they needed to harness their entrepreneurship in order to create it. So there are the four factors of production, land, labor, capital and enterprise that went into a producer being able to produce the pizza so that then Alan and his friends could go and spend their money there. Of course, I'm going to come back to buying his laws online because remember I told you this remember I said that he likes to buy in Ireland. I didn't say that, I didn't say that at all, scrap that he likes to buy in the UK and in Spain. So I'll come back to that. And also he spends money on public transport as well. Okay. Now, if it's public transport, the likelihood is that that is money being given to the government. And we'll come back to that. So for now, let's just say Alan spends his money on meeting his friends and the four factors of production go into factoring that in. Okay, so what happens next? Now, when it comes so to firms providing output or when it comes to when he spends money on the output of firms, of course, what firms do is they provide income for providing the factors of production. So this is how people get money at all in the first place. So what what a company is doing, what a firm is doing, if we go back there to Alan's story, is that of course, with the four factors of production that have happened as a result of creating the space for Alan to go for pizza with his friends, is let's just think through what they are. So first of all, so the pizza area, the entrepreneur, the entrepreneur, what she needed to do was she needed to either buy the building or she needed to rent the building that she was going to use to subsequently provide the pizza area. So as a result, then the money, that money, so she's paying for that factor of production, either she's paying for the building, or else she's renting and she's paying rent for the land in order to be there. So that money then of course goes to somebody and when that who that somebody is, then they subsequently spend it again thereafter. The second thing I said was labor. Remember, I said there was somebody that needed to actually actually make the pizza, let's call that person a chef and somebody that was going to be the waiter as well. So in those cases, let's say the chef is making the pizza, the chef is getting paid and let's say the waiter, he also is earning a wage. And then that provides both of them with the money to then go on and spend again according. Now, the next one is capital. Perhaps the entrepreneur who set up the pizza area, she needed to borrow money. I'm going to say she needed to borrow, I'm going to say she needed to borrow 100,000 euro. She needed to borrow 100,000 euro and she was borrowing that money at 4% of an interest rate. So let's say I'm using simple interest here, I'm not getting technical on it. So if she borrowed at 4%, she would need to pay 4,000 euros in interest on that money that she would be repaid back in the first year. So of course, that money goes back into the bank and then the bank uses that money to then pay their own respective staff and then theirs and so on and so on and so on from there. And then finally, we will assume that the entrepreneur is making a profit that she's running the business whereby there's enough people buying pizza in the place like Alan and his friends where she has enough money to pay the staff, pay the rent, all of the other bills that she has to pay and pay for the food, pay for the capital, repay the loan, all those sorts of things and she still has money left over for herself. If she doesn't, well then of course she may then look at into the long term, maybe she closed the business. If she's making a lot of money, for example, normal profit, what she might decide then to do is to expand etc. But all of this assumes, as you can see over here, that the output that the income paid for the output of these firms is then being recycled back into the economy again. And we get into other terms like margin propensity to consume etc later on. So there we go. We have Alan who is earning money and he's earning money because he's providing a factor of production, namely labor to a hotel and from that he's then spending some of that money on going out for pizza. And then that company is spending money as well after in order to produce what they need to produce to give the service to Alan and his friends, then they're for providing all of those factors of production, then they're producing an income then thereafter. Okay, now let's now move on to the next one which is government. So let's get a sense of what is, where was there, there we go. So what is it that Alan is doing in order to receive money from the government? Now, I embedded the clue in hearing the story because it's not that Alan gets the money for this but Alan definitely gets the benefit. And that clue is right here. He's a 16 year old secondary school student. If he's a secondary school student, well then of course the government is providing the wages for his teachers. And as a result, that is a way in which Alan definitely benefits from that. Now, admittedly you could say, okay, but maybe Alan goes to private school and his parent or parents or guardians are paying extra money. Okay, fair enough. Or you might say, well, you know, it's not just the teachers that are teaching Alan. I mean, there are also, there might be special needs, there might be an SNA or there might be the secretaries that are there who are paid by the government far to run the school or there may be a range of other things. And yes, you would be totally right if you look at that. The point is though, is that the government is providing money that Alan benefits from. And as a result, then of course that keeps money flowing because then the government is providing money to the teachers for providing a factor of production. For example, namely their labor, then those teachers have money to take one and then spend at the hotel, for example, where Alan is working. Now, in addition, if I was to get a bit more direct, if I was to get money closer to Alan's pocket, another thing of course, is that Alan, Alan's, I'm guessing mother, if Alan's mother is alive, but I'm guessing his mother are also I'm guessing that Alan is in the same house as his mother. But typically children's allowance is paid or child benefit is paid directly to the mother of the, now I wouldn't call Alan a child because he's 16, but to the person that she brought into the world. Let's just put it that way. So in this case, again, money is, as a result of Alan being here, is the money is being provided from the government then to the parents as well. Now what about the other way around? Okay, so what about the other way around? Oh, sorry. Here we go. So in this case, this is the way in which the government has been spending money. So and spending the money that it has been spending, for example, on salaries and child benefit, etc. is then on the other hand, what is it receiving in tax? Well, we already have this because we know that Alan is earning 20 euros an hour. He works 15 hours a week on average. The reason I put in that he's working 15 hours a week is that when I went, when I picked smaller numbers, but there wasn't any tax from that, so I didn't fit in with my story. So if he's earning 20 euros an hour and he pays tax on the money he earns, well, let's just think about, well, how much would he pay? So this, I find, is a very useful calculator. It's called Salary Calculator Ireland. So what I did was that I moved his average wage to weekly or moved salary calculator to weekly. And I worked out then if he's earning 20 euros per hour and if he's working, if he's earning 20 euros an hour and if he is working 15 hours a week, let's just calculate what this is. So here we have 20 multiplied by 15. In this case, he's earning 300 euros per week. Like I say, he's working full time during summer just in case you're wondering, what's he doing? So 300 euros per week over here, 300 euros per week and I'll press calculate. And what this is going to do is it is going to tell me how much he is paying a tax. And as you can see here, he is paying three euros a week in tax. And I can get into the detail. There we go. So you can see here, and that comes from Universal Social Charge. On a yearly basis, he would be paying 132 euros is how much he would be paying on an annual basis for Universal Social Charge, whether he wouldn't be paying income tax and he would be paying PRSI. So his total tax rate is 1%. Now, you can, and I upgrade from this calculator, you can for sure, you can look around and you can say, well, imagine if I was to earn, for example, in the job in the future, I'm going to earn 60,000 euro. And then you can see exactly how much you would end up with. So in this case, as you can see here again, you can see that your total tax, your tax rate, your margin tax are, yeah, yeah, well, your average tax rate would be 28% here in this case. And your take home pay would be 72%. If on the other hand, if I was to earn 120,000 euros a year, what would my tax rate be? As you can see now, because we live in a progressive taxation system, and some of you will have done that chapter already, what you'll see here is that the margin tax rate here in this case is 40%. The take home pay would be 60%. And the other thing that I like to do with this calculator as well is what about if I didn't live in Ireland? What about if I was to live in Belgium? For example, let me head off here to the calculator and all of the picture. I was going to say that was Brussels. I actually think that might be Antwerp. But anyway, it is right if I take a look here. And this time I'm going to earn 60,000 euros again. And what do I get this time? It's a bit of a difference, isn't it? So 60,000 in Belgium would give me 35,000. So the tax rate here is 41%. Remember what it was in Ireland? If I'm correct, it wasn't a 28% in 60,000. Let me just check. Pretty sure it was. I think it was 28% whereas here it's 41%. Yeah, it was. And let me go on. Let me just see. Now, if I was to do so with 120,000, this was 60,000 take home pay, 60% take home pay. How much would it be here? You'd actually be taxed more. You'd actually be taxed more for every euro that you would earn. You're actually paying more to the government than you're keeping yourself in Belgium. And of course, we could then go on and we'd have a look at all sorts of other things about Belgian public services and other things like housing and social housing and social welfare and all those sorts of other things. But looking at that calculator, I think that it's something that's really interesting when you look at income tax, social security, regional tax, et cetera. Okay, so back here to our flow of income. So as you can see here now, Alan receives, he pays tax. Okay, so he does pay tax. He pays tax on the money that he earns. And of course, he also, it's likely that he pays VAT. He probably pays VAT value added tax as well on the pizza that he buys and perhaps on other things too. But on the other hand over here, then Alan receives the indirect benefit of salaries of his teachers and child benefit would go into his house as well. All right, so now let's keep going. Let's now go on to the next one, which is financial institutions. Now I'm sticking here with Alan. We're going to move into the country after this. When it comes to financial institutions, how does this work? Okay, so first of all, some of his income is actually going to be spent on spending, like we said, like the pizzeria. Some of it is going to be spent on tax, which we've also talked about, for example, universal social charge and also VAT, but also he saves some. He told us that. He also saves about 20% of his take home pay. Now 20% of his take home pay, since his take home pay is 99% of what he earns. That's why I want to keep the numbers broadly speaking round. But he also, so he saves about 20% of his take home pay. That means that if he earns 100 euro, 20 euros of that goes somewhere. Now I didn't specify where that goes. Because I am sticking with the Irish economy, I'm going to say it goes into the Irish economy. So I'm going to say that he saves this in an Irish institution. So far, if I was to block this out down here, we would be talking about a closed economy so far. So this is where Alan spends his money, sorry, he saves some of his money in a financial institution. So one of the Irish banks, for example. However, then those financial institutions might then also be investing in, so using the capital of the financial institution to a firm in order to provide, and that might go back to provide something that would be there to help the firm to produce whatever they're producing. That was a really convoluted way of saying, for example, because some of the money that Alan saves goes into the bank. And then let's say the entrepreneur from the pizzeria, she then goes to the bank who borrows that money in order to build the pizzeria that ultimately she's then going to charge Alan to go in and to buy a pizza for. But of course, you may then go on to hire Alan to work in that pizzeria. And again, this is why the circular flow of income just really clarifies how money moves in the economy. Now, the other thing, of course, is that Alan told us about his plans. And he said he'd love to go traveling around the US for six months after he qualifies as an economist. But he may need to borrow 5,000 euros for that in the future. So if he wants to borrow 5,000 euros, and let's say he needs to go to a financial institution in order to do so, where would he get that money? Well, we're back to the circular flow here, which is where he would get it as financial institution, but where they would get the money is from savings. Now, of course, one of the biggest stories that's happening around the world again this week is what's going on with banking in America with the regional banking banks in America. So a lot of you might have heard about Silicon Valley Bank back in March, whereas now this week, First Republic was also taken over as well. So when we're looking at confidence in the banking system or what I mean by that is people putting money into a bank knowing, believing that they will be able to get that money back easily, or alternatively when a bank is lending money to somebody knowing or believing that they will be able to repay that money with the interest. All of that is is an entirely different area of the syllabus. That's the financial sector, like I said, really topical at the moment. But what I'm doing here is I'm solely focusing on this part of where the money is actually flowing. So we're not getting into regulation. We're not getting into trust. We're not getting into confidence in the banking system. We're not getting into Silicon Valley Bank. We're just solely, and of course, specifically what I'm looking at here is the Irish economy as well. So just want to reinforce that point. All right. Now, we now know that he saves 20% of the money and that he wants to borrow 5,000 euros in the future. We also know that the entrepreneur who set up the pizzeria may have borrowed, I said, for example, 100,000 euro in order to build the pizzeria in the first place. And let's just say that she is also putting the surplus cash that she is taking in, then that is also going into the business bank account up here. So so far, we're in a closed economy. Everything here has happened in Ireland, everything. So Alan has been working in Ireland. He's been paid an income in Ireland. He's been spending his money in Ireland in the pizzeria. The entrepreneur created the business in Ireland. She borrowed the money from an Irish bank. She's hiring people who are based in Ireland. And the only tax that has been paid is to the Irish government. The only money that we've looked at moving through the circular flow of income is from the Irish government. We've looked at Irish banks lending money to an entrepreneur or lending money to Alan. Similarly, we've looked at Alan or the entrepreneur putting money into the financial institution. Okay. But now we need to broaden it out. Because now, of course, we need to understand an open economy. And an open economy is when exports and imports happen, is when I, as an individual, might decide that I am going on holidays to France, which I'm doing later on this year for the World Cup. But I, or alternatively, we might have somebody who is right now sitting in London saying, I'd love to see what go away is like in the summer. And that is going to be somebody coming over here. Or it could be where I'm just looking at the camera that's up here in front of me is a Logitech camera. And that I actually got in the States. So that is where I as an Irish consumer, sorry, the Irish business bought the camera because it was going to be used for the business. So of course, an open economy is when things happen between countries. So let's go back to Alan's story. And how did I factor this in? Now, what I made very clear, one, I hid a little bit. So over here, I did say that he likes to buy his clothes online. And I said that he likes to buy his clothes online in the UK and Spain. I picked those two countries because I like brands in both of those countries. So in this case, when he is logging on, or let's say he's going on to his mobile, and he picks out the clothes that he'd like to buy, and he's putting through money in his buying those clothes, that money is then leaving. I'm going to say his Irish bank counter is revolution card or wherever. And then that money is going across into the UK or Spain or wherever he might be buying. And that money then is then leaving the country. And if it's leaving the country, well, then that is an import. On the other hand, I also did say he also does get tips. And because he gets tips from people eating in the restaurant in the hotel. And I also said that some of those were local and some of those were international visitors. If you have somebody from Sweden, who comes to eat in the hotel, where Alan works, and then the person from Sweden gives Alan a five Euro tip. Well, then that is money that is leaving Sweden, technically, well it already left it when the Swedish visitor was leaving Sweden to come to Ireland. But ultimately, that is Alan exporting because he is selling his services, which is customer service, to somebody outside of Ireland. So this is an example of how Alan himself is both exporting and importing. He is importing clothes from the UK and Spain. He is exporting his customer service via a tip to the people who come to the restaurant. And let's say the example there is from Sweden. Now, what are all of these over here on the right and on the left? Well, leakages and injections. So now what we need to think about is it would be so straightforward in simply a market-based economy. A market-based economy going back to Chapter 3, a market-based economy where I have money and I would like to spend it. You have a product and I would like to buy it. So as a result, I give you all of my money as I buy all of your products. Or I am a business and I'm producing things that you all want. So what I'm going to do is hire you all to work on my business, pay you all a wage, and then you all buy the products that I produce, which gives me enough money to pay you back for the labor that you provide and round and round and round goals. But of course, life is a lot more complicated than that. So outside of this circular flow of income, instead then there are leakages. And some leakages is that if I don't have money to spend on the Irish economy, where is it being leaked? Well, number one is if the government is taking it. If I have to pay the government universal social charge or income tax, or if I have to spend, if I have to pay VAT, all of that then is money that's going to the government and it's not going to the pizzeria or it's not going to another place. Secondly, if I'm saving some, well, if I'm saving 20% of what I earn, well, then that means to be obvious about it is that I'm not spending that 20%. I'm only spending 80%. So let's say that I earn a thousand euro and I spend 800 euros of that. Well, then 200 euros of that then goes into the bank and then that's not getting into the pockets of customers in the future. And then also from there, if I am spending my money like Alan is and I'm spending money by buying the services of let's say I'm going to France and I'm there, I'm buying coffee there, I'm buying a croissant there, I'm buying tickets to a rugby match there. If I'm doing that, well, then I'm not buying coffee in Ireland. I'm not buying a croissant in Ireland or a school or I'm not buying rugby tickets in the Aviva. Instead, my money is going to France. That also is a leakage out of the Irish economy. But what is an injection? Well, number one is if the government is actually putting new money into the environment. So let's just say that the entrepreneur is sort of relying on customers like Alan to come to the pizzeria. Well, wouldn't it be a super help for her if she could, let's say, get a grant from the government to get set up? Of which, by the way, she can. But let's just say that she was to get the trading online voucher, for example, this is one that our own business got trading trading online voucher, okay, trading online voucher. This is provided by the local enterprise office. So this is ultimately an arm of government. And what this does is that I can apply, as any company can, I can apply to to get two and a half thousand euros to build a website. Now, what needs to happen is that I also need to put two and a half thousand euros with it. So then five thousand euros goes into the website to build it, but two and a half thousand of that comes from the government. And that is an example of government expenditure. So that would be a help. That would be an injection into not just the entrepreneur's business, but the economy in general. Also, if the entrepreneur, so if she is borrowing money to build and to to build the pizzeria, well, then she may create work for people in the construction industry or she may have to go out and buy that, you know, wooden fire oven, whatever I'm trying to think, whatever I'm trying to think of. But because she then has to go and she has to buy more materials. And also, of course, then she also has the money now to pay staff so that they're there before she opens the restaurant. All of that then means that that is injection, not just into the local community, but into the economy more broadly. And of course, if we have tourists who are coming from Sweden with their tips for Ellen, if they're coming from France, they're coming from the UK, they're coming from Germany, coming from Australia, they're coming from US, all of those then are bringing new money into the economy as well. And all of that then acts as an injection into not just the entrepreneur's business, not just Alan's pocket, but also to the wider, wider economy. And again, this really does, in my opinion, help us understand how the economy works. What I've given you is a single case study where we've got Alan and the interactions that he has. I've also touched on the entrepreneur and the interactions that she has. But the real question is, of course, is that how does this affect the broader, broadly speaking, how does this affect the government overall? Sorry, not just government, but the economy overall. So there's three areas that I'm going to explore with you on that. One I've already done so when it comes to the salary after tax. But let me just consider this. So as an economist, there's three questions that I would like to ask is how much money does the government spend and on what? So I'm going to give you the data also for how much the government receives. So let's just have a think about this first. So what does the government actually take in in tax? And here we have the extra return. So that's the fancy dance term for and it actually comes from when it comes from even before Ireland was the Republic. So it's over 100 years old this term, but extra returns is the tax take, right? So that's how much the government receives the tax. This was released today at three, half four, in fact, and by Laura Slattery, she's a very good financial journalist. So she said 4.4 billion in tax receipts collected in April with income tax to start performer and income tax receipts were 12 and a half percent higher last month than they were in April 2022. So how can we see what this is? So this means that there was a lot of income, a lot of household income here has been generated in tax. And this has come from the fact that our household income is very high in Ireland. And that is because we have got quite close to full employment. Now, if I just take a quick look around here, because last year was a super bumper, bumper year in 2022 was for the Irish tax take. So the Irish, the government collected tax receipts, that's money that they collected. So that's income of 4.4 billion in April, which is up 478 million or 12.2 percent the same month in 2022, with income tax, proving the star performer last month, the latest return show income tax, that value added tax and in particular corporation tax. So that's the tax and company's profits have driven strong growth in tax revenues in the year to date, with tax receipts of 24.1 billion up 14.2 percent. So rather than compare month over month, what Laura here is doing is she's pointing out is that over the so far in the first four months of the year, is that tax receipts are 24.1 billion. So they're up very significantly and last year, which was up very significantly on the year before. So the April year on year increase is at a slightly slower rate of growth than that records in the first three months of 2023. In other words, the growth rate here was 12.2 percent in April, but on average, it's been 14.2 percent over the four months. So this month's actually slower growth rate, even though it is very strong. Corporate tax, and this I find really striking, corporation tax of 3.55 billion for the first four months are running 1.3 billion more or 55 percent higher than they were in January to April 2022. So I won't elaborate any further than that, but of course, all of this is leakage. All of this is money that is leaving the building. All of this is money that is not being put into people's pockets, it's being put into the government. The question then is how does the government use that money in order to make sure that it keeps flowing and that then it can also give grants to entrepreneurs like the one who set up the pizzeria. How can it make sure that Alan has the best education that he can possibly get? How can the government employ more people to provide more services or invest in more roads or build more schools or build more hospital beds, etc.? Right. The next question that I wanted to ask is how much does somebody pay keep of their take home pay? And that's what we already looked at here in this case. So in the case of Belgium, in the case of Belgium, there is a far bigger leakage than in Ireland, far, far, far bigger leakage because there's far more tax that you would pay out of your take home pay in Belgium than you would in Ireland. But if we could take a look around, and of course we happily can, if we were then to take a look around. And if we were, for example, to look with the US, let's just say that I earned 120,000, right? All I want to show you here all I want to show you here is the amount that's left over afterwards or the percentage. But what I'm not concerned about here is the currency because we know that there's dollars in America and that there's euros here. So if I was to earn 120,000 dollars in, where am I going to go? I am going to go to Texas, let's take Texas, love Texas. I'm going to click calculate. And here you can see out of 120,000, I would be keeping 77% of that. In Ireland, I would be keeping 60% of that. And in Belgium, I would be keeping 48% of that. So there you can see the different, different tax takes. Okay. And then the last one that I wanted to show you here is how much do people in Ireland spend and save? So actually, when I said that Alan saves 20% of his money, what do Irish people in general save? Well, the answer is very similar, is that the household savings rate was 20% in Q4 2022, as Irish people continued to continue the higher rate of saving and they began during the pandemic. So households saved 3.9 billion and now they're leakage. So here, as you can see, this is savings is another leakage because then that is money that is not being spent. So in this case, the total disposable income of households in real terms was largely unchanged in the quarter, as inflation eroded higher income from employment and social protection. So in essence, in the last budget, there was more money provided in social protection and wages are rising, not equally. And they certainly didn't rise last year at the pace of inflation, but wages, broadly speaking, are rising. But for any of you that have studied the inflation chapter, the total disposable income. Okay, disposable income is of course the money after particularly a mortgage, but the money that they have to use on costs that aren't fixed and things that they like to spend on. It was largely in real terms, real terms, another word for real is inflation adjusted. So in real terms was largely unchanged in the quarter, as inflation eroded higher income from employment and social protection. So consumption grew. And this was partly due to higher inflation, because of course, let's say that I bought this bottle of water last year and it was Euro and today it's 120. But if it's still on the water, well, then I have to pay the 120. Similarly, if I want to eat, like I had a, I had a pasta, chicken, arabia at this evening for dinner. So I still have to eat. So if it's more expensive, well, then I still have to pay for it if I want to eat. If I'm earning more, that's great. But if I'm not, well, then I have to make choice about where I'm spending my money. But in essence, high household consumption did grow and partly due to higher inflation, but also because more goods and services were used, particularly in the hospitality sector. So it was more spending done there as well. Okay, so the answer is 20%. 20% is how much do people in Ireland spend and save. So 20% is what they save. And then of course, to get into how much they spend, then we'd have to look into how much costs and tax and so on like that. These are your data sources. So yes, how much does the government spend? I never, I didn't answer that one yet. So how much does it spend? Well, in 2023, the injection into the economy is set to be 103.5 billion euro. And the biggest, biggest number out of that is health over here at 24 billion. This is the money that's spent on health. 23.9 billion spent on social protection. And then we can see the others 10 billion spent in education, three and a half billion on transport. And this is again, what I wanted to point out about Alan is that when he's spending money on transport, he is providing the government with money for a factor of production. That's not tax, it's for a factor of production, 3.4 billion on justice. And this is the money that the Irish government repays to people who lend to the government money. If you put money into the post office, you're one of them. Okay. And if I was to, I can delve into, I love this website, I can delve into it here. So I can just double click on any of those areas to see really where the money goes. So for example, here 8.63 billion spent on pensions. And then we have 1.16 billion on other pensions. This is 702 million probably paid a lot there on salaries of people who work in Department of Social Protection, illness, disability and carers, 5 billion. Where's children? Yeah, that's child benefit there is 2.7 million. Now, if I was to look at education just for the crack, if I was to do that. And let's just take a look and see what's in there. The first, second and earlier is education. And as we can see here, that money has grown over time. 9.26 billion in 2021, 10.03 billion in 2023. And we can see social protection has down a lot in comparison to 2021. And of course, that's because the government didn't have to subsidize a lot of people because of what had happened in the pandemic. And then the employment lastly came with it. All right. So they were the questions that I had sought to answer in when it comes to look at this from an economic point of view, an overall macro economy point of view. Now, I love this story. I wrote this story all about John when I was writing this part of the chapter. Brian did an awful lot of this chapter. He was really super when it comes to national income. And Trudy provided an awful lot of the color of the different reports then they came in around it. I loved this. I wrote the story because I think it really exemplifies what it is all about. And that is that, let's say we have John. John receives pay rise 100 euros a week and he's delighted with life. And he spends 80% of this going to the dentist. Then he saves the rest. So he keeps 20% as on average would happen at the moment with a typical Irish resident. And then so then the dentist receives 80 euros and the dentist goes off and spends 80% of this money because the dentist needs a painter to come in and paint surgery. Again, they keep 20%. And then the painter receives from their 64 euros and then they're going to buy glasses. And then the optician receives 80% of that. And they decide they actually need, they want to get a new plug into the wall. So they hire an electrician and they spend 60% of that. And then they, the electrician then buys a book on the way home from work. And then the bookshop owner receives that amount and on and on and on and on and on and on. It goes, if John didn't receive the increase of the 100 euros in the week, look what wouldn't have happened. Look what wouldn't have happened. And this is the problem with recession is that when recession happens and people don't spend money, we'll then look at all of the knock-on effects. It's not that Alan maybe doesn't go out for pizza, maybe he gets a takeaway instead and he orders at home. So then in that case, he probably won't spend as much as he did if he went out for the pizza. Maybe he doesn't get the pizza at all. Maybe he cooks at home. Maybe he doesn't cook at all. Maybe he just eats the dinner at home. But the point here is that when you understand the circular flow of income, you can see what happens if it starts, but if it stops. So if the government similarly puts two and a half thousand euros into the entrepreneur's website for the pizzeria, think about all of the other things then that can happen thereafter as a result of that, is that then she needs to get a graphic designer and she needs to get a website designer and then she needs to pay tax on that work as well, probably the 23%. From there, then all of those people may go on, then they might hire additional people. Like you saw there, even when I googled it, when I googled the Trading Online Voucher, you can see there's companies that are sponsoring ads. So they're paying Google money to be able to make sure that if I'm searching for Trading Online Voucher, they're the ones that are appearing first. So of course, there's a lot of knock-on effects. And that's why I like that story about John is because there's so many different people that it goes on and on and on and that affects. But the one constant that I had in the story was that each person spent 80% out of the money that they got. And this, of course, is when it comes to marginal propensity to consume. Marginal propensity to consume, oh my good god, I can't believe that I have got the wrong terminology there. Now, that I am not going to allow to happen. That should be marginal propensity propensity to consume. Okay, marginal propensity to consume. And let me pop on over here. This is marginal propensity to tax, marginal propensity to tax. And this one is marginal propensity to import. Marginal propensity to import. Okay. Let it not be said that I had the incorrect data in here. Import. All right. There we go. Job socks on. Right. So when it comes to marginal propensity to consume, marginal propensity to tax, marginal propensity to import is what influences Alan? Well, if Alan gets a pay rise, so let's say that he now goes to earn 25 euro instead of 20 euros, then it's quite likely that because he has more money he would then increase the extra money that he gets, he might increase his spending of it. So instead of saving 20% of that, he might say, well, I already have savings in banks. So I'll go on and spend 90 euros of that instead. And that is marginal propensity to consume. And if you think about it, if somebody is in a position where they don't have a lot of money, their marginal propensity to consume is likely to be higher. Like I certainly remember when I was working in a job in college and if I had gotten 100 euros of a bonus or if I got a pay rise, there was plenty more things waiting for my money to be invested or to be spent on. If I was somebody and I earned 2 million a year and then you gave me an extra 100 euros a week, really what extra could I be spending that 100 euros on? The marginal propensity to consume on that type of money might be very, very low. Marginal propensity to tax is of course then when it comes back to looking at Belgium or an Ireland in the US is look at the difference there. So when it comes to marginal propensity to tax is that you might say as a government, well, if we increase a tax rate, well then, then does that mean that we act as a disincentive to the like of Alan to work? Or are we acting, if we increase, let's say VAT on hotel beds, well then are those visitors from the US going to come over and stay in Ireland? Or if we are going to increase corporation tax? So as you may be aware, corporation tax is now increasing to 15% if turnover is over 750 million. But you may say, but if it went to 15% for everybody, well then would that affect some of the foreign direct investment that's in Ireland today? And that's the question. That is the type of thing that will influence. And then if we go on to marginal propensity to import. So why is it that Alan wants to buy clothes from UK and from Spain? Is it because of choice? Is it because of price? Is it because of convenience? I mean, if he can buy a brand of a jumper that he likes for 80 euros in a shop in Ireland, but he can buy it online for 45, then you can understand why he would want to import instead. If he can't get that jumper in Ireland at all and he wants it, well then he might buy it online. Or maybe it is the case that he can get it in Ireland. He can get it at 45 euro. He just can't get it for three weeks, but if he gets it online, he'll have it in three days. Again, we could be back to marginal propensity to import there. So all of these things influence Alan. And of course, also Alan might say, you know, I'd love to travel and I'd love to work as well as an economist and maybe I could go to the EU and I could work in the European Union and I could work then I could go and I could live in Belgium. Well, he would need to look at the tax rate. Now, there may be special rates for people who work in government jobs or there may be other other things that he may may consider. But also the marginal propensity to tax here is going to affect how much money he fundamentally ends up with in his pocket and thus that he can put into the circular flow economy. Circular flow of income in the economy. So I did a little research and I looked at the marginal propensity to consume in Europe for 1% difference in your disposable income. I found this interesting. So if we take a look at and this, by the way, this study came from Allianz, if we look at Europe or if we look at France and let's say somebody gets a 1% increase in their disposable income, let's say somebody has 1000 euros they can spend and in the month that's what they have after taxes and fixed expenses. And then they're left with 1000 euros and then instead they that money goes up to 1010. So that's an increase of 1%. They're likely to spend 2 euros and 10 cents out of that. That's in France. In Germany, it is much higher. It's 7.1 cents that they would, sorry, 7 euros, 10 cents out of the extra 10 euro that they would spend. In Spain, it's higher again. If they were to get an extra 10 euros on top of the 1000 euros disposable income, they would be spending 7.80 of that and in the US it was 3.50 euros. It was much smaller. Now, don't worry about what the percentages imply or the numbers here that I'm trying to come up with. The fact of the matter is that you can see over here that the US and France has a much smaller marginal propensity to consume than Germany and Spain. So what that tells me is that if I was the government in Spain or I was the government in Germany, is that if I was to release more money into the economy? Well then of course then that would be a good injection because I could move it on very, very quickly. In the US as you can see it's a lot lower. Why might that be? Now of course we can get in and we can understand the difference in salaries and living standards and wealth between Germany and US. We can look at how consumers consume. There's a range of things that we could do and as economists we would simply love to get in behind that. But I just wanted to show you the NPC in Europe, in France, Germany and Spain and then also show it to you in comparison in the US. Okay, when it comes to another injection I just want to talk about an occasion of where there's a shock because this has been a question that has come up and leaving search lots and lots of times is about how would you handle a certain shock. And let's just take a look at this. This is a graphic that comes from the CSO and just look at the sheer volume of support that needed to happen. It's first of all we had companies that needed to avail of state support. And so and there was the trading online voucher just to give you an example because like I say we were in receipt of that. Back then of course there was so much more and activity was happening online. So everyone was buying online, you were ordering your takeaway online, people are looking at online streaming services like if you weren't online in 2020 and you were selling a product well then you were really behind the curve and the government knew that. So rather than this being back here where you could get two and a half thousand euros and on top of that you would have to provide two and a half thousand as well is that instead they changed to where I was 90% funded and that made a huge huge huge difference. So that meant that you only needed oh I have to do the math now to remind myself. So 90% is that you only needed to provide 250 euro and then the government would give you two and a half thousand. Now we went and we went ahead with that and that by the way is what I should actually tell you about this. This is what inspired the re we did entirely we did up the the Positive Economist website and we gave it a total new look that's in here. By the way the summary of this webinar is going to be over here in the economics blog. Back here the summary of the last one like Instagram is in there and the summary of the one before that a case study of supply and demand and how college places are distributed in Ireland is there too. So we did like we did a total redesign of the Positive Economist website with that money and that of course was an injection because that money first of all came to us got us to spend and we spent more than more than it took it to cost more than 2750 to rebrand the website or not rebrand but give it a you know what I mean do it up again but then that money moved on then into we gave it to a graphic designer and a website designer and and so on and so on from there. So that was and there was a lot of state support there was a lot of state support provided at the time and where companies needed money so there was money given to companies to be able to help them to handle social distancing and extra sanitization there was money that was provided to give the support for wages and in general just in general not even just in hospitality but in general there was a lot of money that was injected into the economy so as you can see here it says of the enterprises that availed of state support 39.2% had more employees in Q2 2022 than in Q1 2020 and of those that did not avail of state support 26.9% had more employees in Q2 2020 so you can see there that it really made a difference to to then go on and and create a lot lot more and maintain and preserve and create a lot more employment but then over here there was the PUP this is the pandemic unemployment payment and this was money that people received if they were let go from their job and of those 39.8% are now in same employment but 40.7% are in a different employment so there was a lot of jobs that had changed at the time and similarly then of employees that had availed of the WSS 61.8% are in the same employment now the WSS was different that was the wage subsidy scheme and in this case it was to keep people in their jobs so to maintain them in in a job where the company had seen a significant drop in revenue then they were receiving money from the government in order to maintain people in their jobs whereas the pandemic on employment payment was for people who had been let go from their jobs big difference there but as you can see there was massive like there was massive massive money pumped into the system and of course that was a a big shock right that was a really big shock massive shock I'll never forget it and don't any of you will either but if I go back here what of course then as regards what this is was this was a government expenditure so then this enabled companies to maintain jobs and it enabled people to be able to find new to to have the money to have day-to-day expenses etc whether we're getting jobs this then of course created new taxes it enabled people to have the money to consume things online and offline it also enabled then government supports enabled people like our business to be able to export as well through the online the trading online voucher it enabled people like Alan to be able to buy clothes from Spain and from the UK so they're the knock-on effective of a shock like that a shock to the system which was massive government stimulus into the environment around around that time was really really really significant and so that does in fact bring me to the last thing I want to talk about here which is exports and imports I just want to point out one thing and that is I got this data here it's the latest data that's available from the CSO on our exports I just want to point out one last thing and that is look here of the goods that we sell the goods that we export and the goods that we buy in as an import look at the difference here is that our exports let's say in in February our exports was 17 billion our imports was 11.9 billion so what you can see here is that we export more than we import but look it's been that case throughout this last series of data and you'll also if you take a look at the services you'll you'll also see the comparison between what we import what we export and therefore right on time on the dot of eight o'clock I want to stop there and say thank you so much for your attention and your interest in economics that's a screenshot there of the website where as I say the summary of this of the session is going to be and like they all are they're they're all there the summaries are there so the and all of the references and everything they're all there so you can go and take a look at them I will of course be back to you next year next academic year with some more positive economics webinars we already have all of those planned and ready to go but with those of you who I won't see and because you'll be going on to do your leaving start I sincerely wish you the very best look we may meet again at another stage along your along your journey if you end up studying in this area or indeed others we may well meet again but if not thank you very much for being here throughout all of the positive economics series thank you of course for supporting positive economics the textbook as well and to all of the teachers who help you along the way and who support us along the way and promote and attend this webinar we really do appreciate it we always always always love talking to you all and showing you just how economics really and truly does come to life I've just checked here I don't see that any questions have come through but of course please do feel free to send them through instagram and through the website thepositiveeconomist.com anywhere you want on twitter as I say and all of the other places that I mentioned at the beginning but otherwise ladies and gentlemen thank you very much good night