Macroeconomics

• National income


  The value of all the goods and services produced in a country during a year, thereby indicating the level of economic activity in the country.
• Leakages (Withdrawal, W)


  Money is taken out of the circular flow of income; Savings + Taxation + Imports
• Injections (J)


  Money is put into the circular flow of income; Government spending + Export earnings + Investment expenditure
• Three sectors of an economy

  1. Foreign sector (or also overseas sector)
  2. Government sector (or also public sector)
  3. Financial sector
• Flow of money in overseas sector

  • Injection → Exports
  • Leakage → Imports
• Flow of money in government sector

  • Injection → Government spending
  • Leakage → Taxation
• Flow of money in financial sector

  • Injection → Investment
  • Leakage → Savings
• If there is more leakages than injections, economic activity decreases.
• If there is more injections than leakages, economic activity increases.
• Gross domestic product (GDP)


  The value of all final output of goods and services produced within a country in a year.
• Nominal GDP(nGDP)


  A measure of national output using current prices. As a result, it's not adjusted for inflation.
• Current prices


  The actual prices of goods and services at the time of collecting the data.
• Gross national income (GNI)


  The value of a country's final output of all goods and services plus net factor income earned from abroad.
• Constant prices


  The values of real GDP and real GNI as they have been adjusted for inflation over time.
• GDP deflator


  A measure of the general level of inflation in an economy
• Real GDP(rGDP)


  A measure of GDP adjusted for inflation
• Real GDP per capita


  A way of measuring the standard of living by expressing real GDP in terms of population size and determining the value of national income per person
• Purchasing power parity (PPP)


  The exchange rate that enables residents to purchase a common basket of goods and services in different countries
• Business cycle (or trade cycle)


  A model that describes the fluctuations in the level of economic activity over time
• Boom


  A phase in the business cycle when the level of economic activity rises due to increase in aggregate demand (C+I+G+(X-M))
• Peak


  Point in which the level of economic activity is at its highest
• Recession


  A phase in the business cycle when there is a fall in GDP for two consecutive quarters
• Slump (or trough)


  The lowest point of a recession in the business cycle when aggregate demand remains low
• Recovery


  GDP starts to rise after a slump in the business cycle, eventually leading to economic growth
• Potential output


  The possible level of real GDP of an economy
• National income equilibrium exists when leakage is equal to injections.
• Three types of leakages

  1. Savings (S)
  2. Taxes (T)
  3. Imports (M)
• Three types of injections

  1. Investment (I)
  2. Government spending (G)
  3. Export earnings (X)
• nGDP = Consumption + Investment + Government spending + Net export earnings
• nGNI = nGDP + Net factor income from abroad
• rGDP = nGDP / GDP Deflator
• rGDP per capita = rGDP / Population size
• The three macroeconomic objectives are:

  1. Economic growth
  2. Price stability
  3. Low unemployment
• Less dramatic peaks and troughs indicate a stable economy.

  
• More dramatic peaks and troughs indicate an unstable economy.

  
• The goal of macroeconomic policy is to create a business cycle with recessions that are less severe and expansions that are less rapid.
• When assets appreciate, people feel wealthier regardless of whether they own the money in actuality. For example, they would have to sell their stocks first before having tangible wealth. Yet the perception of wealth plays a role in consumer confidence.
• Confidence is key for economy. Governments are careful of using terms such as "recession" or "depression" as it may only exacerbate the situation.
• The price of energy affects the price of everything.
• Fiscal policy


  Changes in government spending or taxation to influence the economy