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Overall economic activity - Contents

In this section, we consider the following sub-topics in detail:

  1. Economic activity
    1. Circular flow of income model
    2. Measures of economic activity
  2. The business cycle
    1. Short term fluctuations and long term trend

Peoples' living standards (Standard of Living - Quantititative measures - not to be confused with Quality of Life (Qualitative measures) - are clearly dependent upon the amount of goods and services that they are able to consume.

Therefore, the production and exchange of these goods and services in the economy, ie the level of economic activity, will directly affect peoples' wellbeing. A major aim of governments is to improve the living standards of its citizens by increasing the amount of economic activity and the rate at which this activity grows (Economic Growth).

To get a better understanding of the nature of economic activity, you will explore a simple model of an economic system - the circular flow of income. This will enable you to see the various elements of the economy and how they relate to each other. As with all economic models, it will be based on a number of simplifying assumptions. The use of assumptions allows us to make some simple predictions that relate to the real world.


Pause for thought

Economics is considered by many to be a social science. It uses models based on simplifying assumption as tools to help understand complex systems, and problems, and to make predictions about the real world. 

A main aim of government is to increase the wealth of the people by maintaining or increasing the level of economic growth. Economic growth is measured in terms of the increase in national income over a period of time. What do we understand by the term National Income and how do we measure it? In this section you look at the issues relating to national income and its measurement.

One of the other interesting things about economic activity is that, over time, it constantly changes. These changes can occur from year to year as the economy moves through a business cycle, but also over the longer term as the economy experiences growth or decline.