M2 Flashcards
refer to the entities that make up the economy and engage in various economic activities.
BASIC ECONOMIC UNITS
what are the basic microeconomic units
- HOUSEHOLD
- FIRMS
- GOVERNMENT
- FOREIGN SECTOR
plays a crucial role in the functioning of the economy by participating in production, consumption, distribution, and exchange of goods and services.
BASIC ECONOMIC UNITS
what roles do basic economic units play
- PRODUCTION
- CONSUMPTION
- DISTRIBUTION
- EXCHANGE OF GOODS AND SERVICES
consist of individuals or groups of people living together who make decisions about consumption, savings, and labor supply.
HOUSEHOLD
ROLES AND FUNCTIONS OF HOUSEHOLD
- CONSUMPTION
- LABOR SUPPLY
- SAVINGS
-INVESTMENT
Examples of household
- FAMILIES
- SINGLE INDIVIDUALS
- ROOMMATES
business organizations that produce goods and services to sell in the market.
FIRMS
They utilize factors of production (land, labor, capital, and entrepreneurship) to create outputs.
FIRMS
ROLES AND FUNCTIONS OF FIRMS
- PRODUCTION
- EMPLOYMENT
- INVESTMENT
- INNOVATION
EXAMPLES OF FIRMS
- SMALL BUSINESSES
- MULTINATIONAL CORPORATIONS
- STARTUPS
- MANUFACTURING PLANTS
- SERVICE PROVIDERS
the public sector entity that provides public goods and services
GOVERNMENT
regulates economic activity, and implements policies to achieve economic objectives.
GOVERNMENT
ROLES AND FUNCTIONS OF GOVERNMENT
- PUBLIC GOODS AND SERVICES
- REGULATION
- REDISTRIBUTION
- FISCAL AND MONETARY POLICY
The government uses ___ (taxation and spending) and, through the central bank, monetary policy (control of the money supply and interest rates) to influence economic activity and achieve macroeconomic goals like growth, employment, and price stability.
FISCAL POLICY
REGULATIONS INCLUDE
- LABOR LAWS
- ENVIRONMENTAL STANDARDS
- ANTITRUST LAWS
primary consumers of goods and services produced in the economy.
HOUSEHOLD
The government implements policies to redistribute income and wealth through ____
TAXATION AND SOCIAL WELFARE PROGRAMS
EXAMPLES OF GOVERNMENT IN ECONOMIC UNITS
- FEDERAL
- STATE
- LOCAL GOVERNMENTS
- CENTRAL BANKS
- REGULATORY AGENCIES
consists of all external entities with which an economy interacts, including foreign households, firms, and governments.
FOREIGN SECTOR
This sector is integral to the global economy and influences trade and financial flows.
FOREIGN SECTOR
The foreign sector includes ____, where firms invest in production facilities in other countries, and portfolio investment, where investors purchase foreign financial assets.
FOREIGN DIRECT INVESTMENT (FDI)
Exchange rates influences:
TRADE BALANCES AND CAPITAL FLOWS
highlights the interconnectedness of global economies,
FOREIGN SECTOR
EXAMPLES OF FOREIGN SECTORS
- INTERNATIONAL TRADE PARTNERS
- MULTINATIONAL CORPORATIONS
- FOREIGN INVESTORS
- GLOBAL FINANCE MARKETS
are fundamental to the functioning of an economy
BASIC ECONOMIC UNITS
UNDERSTANDING BASIC ECONOMIC UNITS IS IMPORTANT FOR ____
analyzing economic activity and developing effective economic policies.
fundamental for understanding the measurement and analysis of economic variables over time.
CONCEPT OF STOCK AND FLOW
help differentiate between quantities that are measured at a specific point in time and those measured over a period of time.
STOCK AND FLOW
The total value of physical assets available in an economy at a given time.
CAPITAL STOCK
The total amount of money (currency, bank deposits) available in an economy at a specific point in time.
MONEY SUPPLY
The amount of finished goods, raw materials, and work-in-progress that firms have on hand at a particular moment.
INVENTORY
The total value of all assets owned by individuals or firms at a given time, including real estate, stocks, bonds, and savings.
WEALTH
Measured at a specific point in time (e.g., end of a quarter, end of a year).
STOCK
Reflects the accumulation of past flows.
STOCK
quantity measured over a period of time.
FLOW
represents the rate at which a stock changes due to economic activities.
FLOW
dynamic and indicate how stocks are accumulated or depleted over time.
FLOW
The amount of money earned by individuals or firms over a period of time (e.g., monthly salary, annual profit).
INCOME
The total amount of money spent on acquiring new capital assets over a period of time.
INVESTMENT
The total value of goods and services produced in an economy over a specified period (e.g., quarterly, annually).
GROSS DOMESTIC PRODUCT
The portion of income that is not consumed and is set aside over a period of time.
SAVINGS
Measured over a period of time (e.g., weekly, monthly, annually).
FLOW
Indicates the rate of change in stock variables.
FLOW
IMPORTANCE OF STOCK AND FLOW TO ECONOMIC ANALYSIS
- MEASUREMENT AND TRACKING
- POLICY IMPLICATIONS
- ECONOMIC MODELING
- MACROECONOMIC STABILITY
The concepts of stock and flow are essential for
comprehending the dynamics of economic variables.
Understanding these concepts and their interrelationships is fundamental for economic analysis, policy formulation, and effective economic management.
STOCK AND FLOW CONCEPT
illustrates the movement of money, goods, and services within an economy.
FLOW OF INCOME
TWO MAIN SECTORS OF FLOW OF INCOME
- HOUSEHOLDS
- FIRMS
can be visualized as a continuous loop, where money flows from households to firms and back to households, facilitating the exchange of goods, services, and factors of production
FLOW OF INCOME
This model helps illustrate how different parts of the economy are interconnected and how income circulates within an economy.
FLOW OF INCOME
PRODUCTION PROCESS FLOW STEPS
- RESOURCE ALLOCATION
- PRODUCTION
- INCOME GENERATION
- GOODS AND SEVICES DISTRIBUTION
- CONSUMPTION AND SPENDING
- REINVESTMENT
IMPORTANCE OF PRODUCTION PROCESS
- ECONOMIC ACTIVITY
- INCOME DISTRIBUTION
- INVESTMENT AND GROWTH
- MARKET DYNAMICS
Interaction between supply and demand for goods and services affects
- PRICES
- PRODUCTION LEVELS
- ECONOMIC STABILITY
crucial for understanding how resources are transformed into goods and services, how income is generated and distributed, and how economic agents interact within the economy.
PRODUCTION PROCESS FLOW
his model highlights the interdependencies between different sectors and provides a framework for analyzing economic activity, policy impacts, and the overall health of the economy.
PRODUCTION PROCESS FLOW
FLOW OF GOODS ECONOMIC AGENTS
- FIRMS TO FIRMS (INTERMEDIATE GOODS)
- FIRMS TO HOUSEHOLD (FINAL GOODS)
- HOUSEHOLD TO FIRMS (LABOR AND CAPITAL)
IMPORTANCE OF FLOW OF GOODS
- ECONOMIC INTERDEPENDENCE
- VALUE ADDITION
- EFFICIENCY AND PRODUCTIVITY
- MARKET DYNAMICS
highlights the interdependence of various industries.
FLOW OF GOODS
fundamental concept in economics, illustrating how raw materials are transformed into final products through various stages of production.
FLOW OF GOODS
involves multiple economic agents and sectors, each adding value and contributing to the overall economic activity.
FLOW OF GOODS
Understanding this flow is crucial for analyzing supply chains, production efficiency, and the interconnections between different industries in the economy.
FLOW OF GOODS
model that depicts how money, goods, services, and factors of production move through an economy.
ECONOMIC ACTIVITY INFLOWS AND OUTFLOWS
This model shows the interactions between different economic agents—households, firms, the government, and the foreign sector— highlighting the inflows and outflows within the economy.
ECONOMIC ACTIVITY INFLOWS AND OUTFLOWS
REAL FLOW
INNER FLOW
MONETARY FLOW
OUTER FLOW
INNER FLOWS EXAMPLES
- GOODS AND SERVICES
- FACTORS OF PRODUCTION
OUTERFLOWS EXAMPLES
- INCOME PAYMENTS
- CONSUMPTION EXPENDITURE
- TAXES
- GOVERNMENT SPENDING
- EXPORTS AND IMPORTS
captures the continuous movement of money, goods, services, and factors of production within an economy.
ECONOMIC ACTIVITY INFLOWS OUTFLOWS
this model helps to understand how different parts of the economy are interconnected and how economic activities are sustained.
ECONOMIC ACTIVITY INFLOWS OUTFLOWS
