Essay about Macroeconomics - 2008 Words

You may have already studied microeconomics, which looks at supply, demand and prices for individual goods. Macroeconomics looks at the bigger picture and involves the study of the economy as a whole. National income Let us start by looking at a simple example - a two sector economy made up of households (consumers) and firms (producers) -and use this to develop the idea of national income. To start with we will ignore the impact of government policy and overseas sectors. Households ultimately own the factors of production, e.g., labour, materials and capital, and supply these factors to firms who use them to produce goods and services. In return households earn rewards for supplying the firms with the factors of†¦show more content†¦This model will use the following definitions: Consumption (C) - consumption goods produced and sold to customers i.e., the chairs. Savings (S) - income that is not spent on consumption. Investment (I) - production of, or expenditure on, non-consumption goods (carried out by firms) including expenditure on increasing stocks of consumption goods. Injections - expenditure on domestic output not originating from consumers e.g., investment. Leakages - income not spent on consumption of domestic output e.g., savings. Consumers will not spend all their income on goods and services. They will also have savings - income not spent on consumption. Similarly producers will not just spend on producing goods but will also carry out investment - expenditure on non-consumption goods. There are therefore injections into (investment) and leakages from (savings) the circular flow. These injections and leakages can now be added to the circular flow model (see Figure 2) Figure 2 Notes to Figure 2 In this model the income earned by households (Y) must be equal to expenditure on purchasing national product (E). Output of consumption goods by firms equals consumption expenditure by households (C). Note that households do not spend all their income - instead they save (S) - a leakage. Expenditure on non-consumption goods by firms is investment (I) - an injection. Income (Y) = Expenditure (E) IncomeShow MoreRelatedMacroeconomics And Macroeconomics Of Macroeconomics1445 Words   |  6 PagesMacroeconomics (from the Greek prefix makro- meaning large and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies.[1][2] With microeconomics, macroeconomics is one of the two most general fields ineconomics. 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