Unit 2: Macroeconomics Flashcards
The Macroeconomics Circular Flow
- Government Sector
- Foreign Sector
- Banking Sector
Government Sector
Government collects taxes from households and firms (leakage) and contributes government expenditure on goods (injection)
Foreign Sector
A nation spends money on foreign goods (imports, leakage) and earns money by selling goods to foreigners (exports, injection)
Banking Sector
Households and firms save money in the banking sector (leakage) and banks provide households and firms with funds for Investment
Leakages
Saving, Taxes, and Imports
Injections
Government spendings, Export revenues, and Investment
Approaches to measuring output
- The Income Approach
- The Output Approach
- The Expenditure Approach
The Expenditure Approach
Counts total spendings on final new goods and services in a given year
Formula for Expenditure Approach
Total Expenditures = C+I+G+Xn
Xn = (Exports - Imports)
C
Total spendings by households on goods and services
I
Investments firms make in a new capital or that households make in real estate and homes
G
Spendings governments do on public goods
Xn
Exports - Imports
GDP
The total value of a nation’s output in a particular period of time. GPD can be measured using the 3 approaches to measuring output
GDP Includes
- GDP is the value of what has been produced within the borders of a nation
- GDP Includes only final products and services
Components of GDP
- Household Consumption (C)
- Private Domestic Investment (I)
- Government Purchases (G)
- Net Exports (Xn)
GNI
A measure the includes the GDP + the citizens of a country earning an income abroad and the incomes earned from foreign citizens within the country’s borders.
Formula for GNI
GNI = GDP + incomes flowing in from other countries – incomes flowing out to other countries
Nominal GDP/GNI
Measures the value of a nation’s output/income produced in a year
