Macroeconomics Flashcards
Macroeconomics
Studies whole economy, focus on why it grows/why activity fluctuates
Households
Owners of productive resources, buyers of final goods and services
Firms
Employers of resources, produce goods and services for economy
Real flow
Flow of goods, services and resources
Money flow
Flow of spending and income
Factor market
Firms hire resources from households in exchange for income
Product market
Households/firms spend income on goods and services
Interdependent
We all depend on each other to provide goods and services to satisfy wants/needs
Capital market
Mediator between savers and investors
Savings
Portion of income not spent on goods and services for CURRENT consumption
Leakage
Reduces flow of money through the economy
Investment
Expenditure on capital goods to use in production
Injection
Money put back into the economy that offsets leakages
Transfer payment
Government provision of social welfare (e.g. Pension, job search/Childcare allowances)
Taxation
Money paid to the government by households
Government expenditure
Return flow of taxation from the government for capital or current goods
Open economy
A economy that allows overseas trade
Why trade?
Allows items from overseas that cannot be produced in the domestic economy
Import
Money flow from Australia to overseas, higher because labour is more expensive in Australia
Export
Money flow from overseas to Australia
Why do capital markets exist?
To match household needs with surplus income/firms borrowing for investment
Government sector
Provides for community needs financed by taxation
Macroeconomic equilibrium
ΣO=ΣY=ΣE (sum of output = sum of income = sum of expenditure)
When is capital market at equilibrium?
S=I (savings = investment)
What happens when leakages exceed injections?
Economy contracts; spending
Disequilibrium
Inequality of savings/investment
Equilibrium of circular flow
S+T+M=I+G+X
Durable good
Expected to provide satisfaction for 3+ years
White goods
Fridge, washing machine, oven, etc
Brown goods
Furniture, carpets, etc
Non durable goods
Consumed quickly after purchase
How much of consumption is non-durables?
~35%
Services
Non commodities, e.g. Education, health, recreation
How much of aggregate consumption is services?
~50%
Private investment
Spending by firms, not for current consumption
Fixed investment
Private expenditure on production structure and equipment
Residential fixed investment
Private expenditure on housing
Changes in business inventories
Stocks produced but not sold
Which sector is the most volatile?
Investment
How much of Australia’s GDP is private investment?
11-23%
How much of Australia’s GDP is government expenditure?
~22%
G1
Current expenditure for daily government functions
G2
Capital expenditure for future needs i.e. Infrastructure
Net exports
Exports - imports
How much of Australia’s GDP is net exports?
-3 to 5%
When are net exports negative?
Imports exceed exports
Cost of credit
Interest rates;
Stock of personal wealth
Property/share investment
Expectations
Positive or negative feelings about the future state of the economy
