1. Introduction to Macroeconomic Concepts

2. Re-cap
Macroeconomics concerns the study of the ‘whole’ economy – eg UK, Europe
Key Indicators of macroeconomic performance – ie how successful is the government being in meeting its objectives
The level of output
Economic growth
Inflation rate
Level and rate of unemployment
The balance of payments position
Main government policy objectives concerning macroeconomic performance
Low unemployment
Low and stable inflation
Satisfactory balance of payments position
Steady 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 on
Households (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 economy H F
Consumer Expenditure
Factor Income
Savings
Taxes
Imports
Government Spending
Exports
Investments

5. National Income
The circular flow diagram shows that there are three ways of measuring national income, each giving the same total. It follows from the circular model that
National Income = National Output = National Expenditure