Macro

• what is macroeconomics


  all about studying the performance of an economy - how well it is doing
• what do macro indicators tell us?

  how well an economy is doing
• what are the macro indicators?

  • growth
  • unemployment
  • inflation
  • trade
  • distribution of income
• what are the objectives of the macro indicator growth?

  strong, sustained, sustainable
• what are the objectives of the macro indicator unemployment?

  low unemployment, full employment
• what are the objectives of the macro indicator inflation


  low and stable, 2% (+/- 1%)
• what are the objectives of the macro indicator trade

  balanced
• what are the objectives of the macro indicator distribution of income

  'fair'
• macroeconomics is all about...

  achieving stability
• trade deficit


  value of imports exceeds the value of exports
• trade surplus


  value of exports exceeds the value of imports
• what are the non-core objectives?


  sound gov. finances, environmental sustainability, productivity growth
• what does the non-core objective "sound gov. finances" do?

  makes sure economy can pay its way in the future
• equation of productivity:


  output per worker per hour
• describe the circular flow of income:

  households provide their 4 factors of production to firms in the form of land, labour, capital, enterprise.

  firms combine them and make goods ans services.

  in reward, households receive factor incomes.

  households spend the factor incomes on the goods and services made by firms.
• what does the circular flow of income show?

  the movement of spending an income throughout the economy.
• what are the leakages/withdrawal in the economy?

  savings (S)

  taxation (T)

  imports spending (M)
• another word for leakages?

  withdrawal
• what are the injections into the circular flow?

  investment (I)

  government spending (G)

  exports (X)
• if injections > leakages this means:

  more money is entering the economy than leaving it

  economic growth is rising
• if injections < leakages this means:

  more money is exiting the economy than entering it

  economic growth is decreasing
• if injections = leakages this means:

  injections and leakages are in balance

  economic growth is neither increasing nor decreasing

  macroeconomic equilibrium
• what is the reward for labour?

  wages/salaries
• what is the reward for land?

  rent]
• what is the reward for entrepreneurship?

  profit
• what is the reward for capital?

  interest
• what does GDP stand for?

  Gross Domestic Product
• what is GDP?


  measure of economic growth
• what are the GDP methods?

  Output method

  Income method

  Expenditure method

  Output = Income = Expenditure
• how to measure Output method of calculating GDP?

  add up the final value of all goods and services produced in an economy in a year
• how to measure Income method of calculating GDP?

  add up all the 4 factor incomes earned in an economy in a year
• what are the 4 factor incomes?

  wages/salaries

  profit

  interest

  rent
• how to measure expenditure method of calculating GDP?

  add up the total expenditure on a country's goods and services in a year (consumer expenditure)
• what are the expenditures?

  consumer expenditure which is investment, government spending, and its net exports
• the equation for the total expenditure on all goods and services produced in an economy in a year?

  C + I + G + (X-M)
• why is Output = Income = Expenditure?

  we are measuring the same circular flow of income so we cant have three different numbers - they are all trying to indicate the same flow
• what are index numbers used for?

  to make long numbers shorter and easier to read

  to make quick and easy data comparisons
• what are the reasons for aggregate demand to increase/decrease when price decreases/increases?


  wealth effect (C)

  trade effect (X-M)

  interest effect (C, I, X-M)
• what does the wealth effect say about aggregate demand curve?

  as the price level decreases, purchasing power of income increases

  consumption increases
• what does the trade effect say about the aggregate demand curve?

  as price level decreases, exports become more competitive and imports become less competitive

  greater demand for exports and revenue generated from exports increases

  less spending on imports