2 Re-capMacroeconomics concerns the study of the ‘whole’ economy – eg UK, EuropeKey Indicators of macroeconomic performance – ie how successful is the government being in meeting its objectivesThe level of outputEconomic growthInflation rateLevel and rate of unemploymentThe balance of payments positionMain government policy objectives concerning macroeconomic performanceLow unemploymentLow and stable inflationSatisfactory balance of payments positionSteady economic growth
3 The flow of money in an economy – “The Circular Flow of Income” The simplest macroeconomic model assumes a ‘two-sector closed economy’ in which all income received is passed onHouseholds (H) provide the factors and in return receive income )in the form of wages, rent, interest and profit) which they spend on goods and services produced by firms (F) in the economy
4 The Four-Sector Open Economy The model can be made more realistic by adding government and overseas sectors and by allowing for injections (J) and withdrawals (W).This circular flow diagram shows injections and withdrawals from the simple model of the whole economy.This is now a four-sector economyHFConsumer ExpenditureFactor IncomeSavingsTaxesImportsGovernment SpendingExportsInvestments
5 National IncomeThe circular flow diagram shows that there are three ways of measuring national income, each giving the same total. It follows from the circular model thatNational Income = National Output = National Expenditure
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