AS Macro Revision: Macro Objectives and Circular Flow

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Information about AS Macro Revision: Macro Objectives and Circular Flow

Published on February 21, 2014

Author: tutor2u


AS Macro Revision Macroeconomics, Macro Objectives and the Circular Flow of Income Spring 2014

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What is Macroeconomics? National Economy • Macroeconomics considers the behaviour of the economy as a whole External factors • Macroeconomics studies connections between different countries in the world economic and financial system Macro policies • Macroeconomics includes looking at the effects of policies such as a change in taxation or a change in interest rates Key topics • Macroeconomics involves studying inflation, economic growth, human development, trade and globalisation

The Four Key Parts of the Circular Flow Model Households Households receive income through wages and salaries from their jobs and from their investments and buy the output of firms (this is known as consumer spending) Businesses Businesses hire land, labour & capital inputs when making products for which they pay wages and rent. Firms receive payment from consumers (creating revenue and profit) Government External Sector Government collects taxes (T) to fund spending on public services such as education, healthcare and defence. Government spending is labelled (G) The UK buys imports from other countries, (M) and overseas businesses and consumers buy UK products – known as exports (X)

The Domestic Circular Flow of Income & Spending Purchases of goods and services £ Taxes Households Incomes Govt Purchases Government Social Transfers Demand Firms Taxes Wages, dividends, interest, profits and rent £

The External Trade Sector of the Economy Imports Exports Rest of the World Purchases of goods and services The Domestic Circular Flow £ Households Households Government Firms Incomes Govt Purchases Taxes Government Social Transfers Demand Firms Taxes Wages, dividends, interest, profits and rent £

What are the key objectives of macroeconomic policy? Price Stability – i.e. Low Positive Inflation A Sustainable Growth of Real GDP (National Output) Falling Unemployment / More Jobs Higher Average Living Standards (Income per capita) Improved Global Competitiveness / Trade Balance A More Equitable Distribution of Income and Wealth

The State of the UK Economy 2009-2014 2014 data is a forecast (Jan 2014) 2009 2010 2011 2012 2013 2014 -5.2 1.7 1.1 0.1 1.4 2.4 Unemployment rate - % of labour force 7.6 7.9 8.1 7.9 7.8 7.5 Fiscal balance - %of GDP -11 -10 -8.0 -6.2 -6.9 -5.9 Consumer price inflation – per cent 2.2 3.3 4.5 2.8 2.6 2.4 Current account balance (BoP) % of GDP -1.4 -2.7 -1.5 -3.8 -3.4 -2.5 Real GDP - % change

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