Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
   1. Overall economic activity - introduction
   2. The circular flow of income model (1)
   3. Circular flow - two sector closed
   4. Circular flow - two sector open
   5. Circular flow - three sector open
   6. Circular flow - government
   7. The circular flow of income model (2)
   8. Circular flow - a summary
   9. Some mathematics
   10. Measures of economic activity
   11. Examining the three methods of calculating national income
   12. What is GDP? (video)
   13. Different national income measures
   14. Real v money data
   15. Current and constant prices
   16. Using index numbers
   17. Total and per capita
   18. Case study - rapid economic growth
   19. Using national income data
   20. Purchasing power of GDP
   21. Alternative measures of GDP
   22. Case Study
   23. Short term fluctuations and long term trends
   24. The business cycle in history
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Circular flow - open economy with government

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• Circular flow of income - three sector open economy

You need to be able to:

Explain, using a diagram, the circular flow of income in an open economy with government and financial markets, referring to leakages/ withdrawals (savings, taxes and import revenue) and injections (investment, government revenue and export revenue).

Remember that equilibrium is when the circular flow is stable (not growing and not shrinking) and is when:

                        Injections = Withdrawals

Investment + Gov. Spending + Export Revenue = Saving + Taxes + Import spending

                            I+G+X = S + T + M

NB It is not necessary for one component to equal its counterpart (eg saving does not have to equal investment) equilibrium is when the whole LHA equals the whole RHS.

NB if I+G+X > S + T + M the economy (Flow) is increasing
NB if I+G+X < S + T + M the economy (Flow) is decreasing


Remember:             Y=E=Q Must be true at all times
                        (because we are measuring the same thing in three different ways)