macroeconomics

• concerns of macroeconomics

  aggregate demand

  aggregate supply

  saving

  inflation/deflation

  ecomonic growth

  trade cycle

  international trade

  economic planning (fiscal policy/monetary policy)
• importance of macroeconomics

  explains the workings of the economy as a whole

  • examines the aggregate behaviour of macroeconomics entities like firms, households and gov
  • to preparing economic plans for a countrys development
• the scope

  studies the concept of national income, methods and measurement

  problems related to employment and unemployment

  the functions of mney and realting theories
• aggregate

  total
• aggregate expenditure total

  consumption (c) + investment (I)+ government spending (G1 &G2)+ net exports (X-M)
• circular flow model

  …

  A) businesses/ firms

  B) households

  C) goods and services

  D) expenditure

  E) income: wages, rent

  F) resources : natural, labour, capital, enterprise

  
• circular flow of income

  ..

  A) households

  B) firms

  C) leakages

  D) injections

  E) banks/ financial sector

  F) government

  G) abroad/ international

  H) consumption (c)

  I) factor payments

  J) net savings (s)

  K) investments (I)

  L) gov. expenditure

  M) net taxes (T)

  N) exports (x)

  O) imports (M)

  
• equilibrium

  occurs when totoal output is equal to the total income

  AKA injections= leakages
• leakages 


  when money is withdrawn from the flow of income between households and firms

  • savings (S)
  • tax (T)
  • imports (M)
• injections 


  money that indirectly enters the flow of income between firms adn households that increases the flow of income
• if more money circulates

  the economy (injections) this will mean that incomes rise, unemployment decreases and spending increases
• if total

  injections are larger than total leakages then aggregate income will rise

  the opposite will occur when total injection sare less than total leakages, then Aggregate Income (AI) will fall , affecting consumer confidence
• consumption (C)

  refers to the spending level of households

  stable

  measured on: expenditure of non-durable goods (food, clothing)

  expenditure of durable goods (lasts 3+ years, clothing)

  expenditure on services
• investment (I)

  • expenditure on producer and capital goods that can be used to produce final goods and services in future
  • most volatile element (risky) reacts to change
• government spending (G1 &G2)

  includes federal, state and local spending on goods, services and capital investment (infrastructure)

  -current expenditure (G1): provides day-to-day functions

  -capitial expenditure (G2): provides future needs, schools, roads, power
• net exports (X-M)

  total value of goods and services sold overseas subtract the value of goods and services brought from overseas

  extremely volatile