intro to macroeconomics

• macroeconomics 


  follows the national economy and the allocation of a nations resources against 5 VARIABLES
• what are the 5 VARIABLES?

  1. economic
  2. employment
  3. price stability
  4. external stability
  5. income distribution
• what is the objective of the ECONOMIC variable


  to oversee a steady rate of increase in national output
• what is the objective of the EMPLOYMENT variable


  to oversee a low level of unemployment
• what is the objective of the PRICE variable


  to keep a low/stable rate of inflation (2-3%)
• what is the objective of the EXTERNAL variable


  to see a favourable balance of payments position
• what is the objective of the INCOME DISTRIBUTION variable


  to oversee an equitable distribution of income
• circular flow of income model

  cover the image and remember*

  
• what is Y

  income
• what is O

  output
• what is E

  expenditure
• what is S, T, M and what do they have in common?

  savings, tax and imports (they are all leakages)
• what is I, G, X and what do they have in common

  investment, gov spending and exports (they are all injections)
• in the context of the aus economy, what is an example of an import and export

  import -> going to bali for a holiday

  export -> tourists coming to us
• an economy is in equilibrium when...

  leakages = injections
• why is savings a leakage? and how does this affect firms?

  Savings is a leakage because its money that’s not used purchase goods and services in the present.

  
  

  Dirms have produced those products, so they

  hold the unsold stock and hope to sell it in future (reducing their future output)

  
  

  Therefore firms will need less of the FOP in future, so the amount of income circulating in the economy falls
• why is investment an injection? and how does this affect firms? 

  When households save, firms can access this money by borrowing from the bank where the household saved their money

  then firm's use this money to increase their stock of capital and expland output (... investment is an injection)
• measuring GDP

  we look at the total amount of FINISHED GOOD consumed by households, firms + governments

  C + I + G + (X-M) = GDP
• GDP

  the total value of all economic activity in a country regardless of who owns the assets (eg. overseas company operates here but takes all profits to X country)
• GNI

  gross national income = the total income earned by a country's FOP (regardless of location)

  GNI = GDP + net property income from abroad
• net property income


  (the income earned from overseas asses abroad) - (the income from foreign assets operating domestically)
• gdp per capita

  total gdp/population *per capita = per person
• what are the limitations of GDP?

  Incompleteness, not accounting for non-market activities (eg. black market or unpaid work), not measuring income distribution, and not capturing environmental and social factors (eg. quality of life, composition of output)