1. Introduction to Macroeconomics
SBC Economics
Introduction to Macroeconomics
Learning outcome U
Identify the main objectives of government economic policy
Describe the main indicators of economic performance
Explain the pattern of the UK economy over recent years
Describe the main economic policy instruments
Know the main schools of economic thought
Explain the Keynesian model of the circular flow of income and expenditure
Explain the workings of the circular flow model
Explain what is meant by the national income equilibrium
Explain the paradox of thrift
Explain the importance of the multiplier
Explain the limitations in the use of national income statistics
Reading: Units 24 & 25

2. Economic policy
The government can seek to affect the economy through using various policy instruments such as:
Fiscal policy
Monetary policy
Supply-side policies
Trade policy

3. Economic policy Fiscal policy The government controls the levels of:
Government spending
Taxation
Borrowing

4. Economic policy Monetary policy The government controls:
The interest rate
Money supply
Availability of credit

5. Economic policy Supply-side policies
The government intervenes in the market to correct what it views as market failure
Examples of intervention include:
Privatisation
Deregulation
Increasing competition
Regional policy

6. Economic policy Trade policy
The government can seek to control the levels of imports and exports by using measures such as:
Tariffs
Quotas
Trade agreements

7. Schools of economic thought
Obviously not economists agree about how best to manage an economy. The different ideas can be broadly split into five different groups, namely:
Classical
Neo-Classical
Keynesian
Neo-Keynesian
Monetarist

8. Classical
Classical economics refers to work done by a group of economists in the 18th and 19th centuries. They developed theories about the way markets and market economies work. The study was primarily concerned with the workings of economic growth. It stressed economic freedom and promoted ideas such as laissez-faire and free competition.

9. Neo-Classical
This approach was developed in the late 19th century. It is an approach to economics that relates supply and demand to an individual's rationality and his or her ability to maximize personal benefit. Neoclassical economics also increased the use of mathematical equations in the study of the economy.

10. Keynesian
John Maynard Keynes provided a framework of ideas between 1900 and His theories stated that government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.

11. Neo-Keynesian
The next generation of Keynesian thinking added more microeconomic ideas to the macroeconomic theories. The results of this intellectual program would produce monetarism and other versions of macro-economics.

12. Monetarist
School of economic thought that maintains that the money supply is the chief determinant of economic activity. Monetarism holds that a change in the money supply directly affects and determines production, employment, and price levels, though its influence is evident only over a long period of time.