Macro Economics

• Economic Objectives

  • Sustainable economic growth
  • Low unemployment
  • Low and stable inflation
  • Equilibrium in the balance of payments in current account (trade)
  • Balanced government budget
  • Greater income equality
• Circular flow of income (1)

  • HOUSEHOLDS ---> F.O.Ps (Capital, Enterprise, Land, Labour) ---> FIRMS ---> Goods & Services ---> HOUSEHOLDS
• Circular flow of income (2)

  • HOUSEHOLDS ---> F.O.Ps ---> FIRMS---> Factor Incomes ---> HOUSEHOLDS
• Circular flow of income (3)

  • HOUSEHOLDS ---> Expenditure ---> FIRMS
• Factor Income (Interest, profit, rent, wage) ---> Leakages

  • Imports
  • Tax
  • Savings
• Expenditures ---> Injections

  • Investment (firms spend on capital goods)
  • Government spending
  • Exports (foreign buyers)
• Economic Growth

  • Injections > Leakages = Economic Growth
  • Injections< Leakages = Economic Recession
  • Injections = Withdrawals = Equilibrium
• GDP Calculation Methods

  • Output: Final value of all goods & services produced (value added through production)
  • Income: Add all factor incomes earnt in a year
  • Expenditure method: C + I + G + (X - M)
  • C = Consumption, I = Investment, G = Government spending, X = Exports, M = Imports
• GDP ( Gross Domestic Product)

  • Measuring the economy (value of final goods and services produced within an economy) within a period of time
• The Multiplier

  -If firms or government spend an amount in the economy (e.g. £100 million), then national income (GDP) will increase by more than this amount (£100 million+)
• Injection Calculation

  • Spending on G+S in addition to consumer spending
  • J = I + G + X
  • J=Injections, I=Investments, G=Government Spending, X=Exports
• Leakages/Withdrawals Calculation

  • Income earnt by households but not spent on G+S
  • W = S+T+M
  • W=Leakages/Withdrawals, S=Savings, T=Tax, M=Imports
• Value of Multiplier

  • 1/1 - MPC
  • Or
  • 1/MPS+MRT+MPM
• Gross National Income (GNI)

  • GDP + net income from foreign investment - Income paid to non-UK citizens on their investments in the UK
• Purchasing Power Parities (PPP)

  • They equalise the purchasing the power of different currencies, by eliminating the difference in price levels between countries.
• National Happiness

  • It's a survey to the population measuring livings standard.