Macro economics

Macroeconomic Objectives
• Distinction between microeconomics and
macroeconomics
• The major macroeconomic issues
– economic growth
– unemployment
– inflation
– balance of payments and exchange rates
• balance of payments deficits and surpluses
• exchange rate movements
 Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per
annum)
 Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per
annum)
 Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per
annum)
The circular flow of
income

The interdependence of
goods markets
and factor markets
The interdependence of goods and
factor markets

FIRMS
(suppliers of goods and services,
demanders of factor services)

HOUSEHOLDS
(demanders of goods and services,
suppliers of factor services)

fig
 The interdependence of goods and factor
markets
(3) (2)
Factor £ £ Producer
demand supply

Factor Goods
services
P P
S S
PF 2
P2
PF 1 P1
D2 D2
D1 D1
O QF1 QF2 Q O Q1 Q2 Q

Factor
services Goods
(4)
(1)
Factor
£ fig £ Consumer
supply
demand
The circular flow of
income
Consumption, injections,
withdrawals and
equilibrium
The Circular Flow of Income
• Withdrawals
– net saving
– net taxes
– import expenditure
• Injections
– investment
– government expenditure
– export expenditure
 The circular flow of income

Firms

Consumption of
Factor domestically
payments produced goods
and services (Cd)

Households
fig
 The circular flow of income

INJECTIONS

Export
expenditure (X)
Investment (I)
Government
Consumption of expenditure (G)

Factor domestically
BANKS, etc GOV. ABROAD
payments produced goods
and services (Cd)
Import
Net expenditure (M)
Net taxes (T)
saving (S)

WITHDRAWALS
fig
The Circular Flow of Income
• The relationship between injections and
withdrawals

– the links between them

– planned injections may not equal planned

withdrawals

• Equilibrium in the circular flow

• The circular flow and the four macroeconomic

objectives