![]() Wealth is year the sum of past net ◦ Deficits: The excess of saving. STOCKS AND FLOWS FLOWS STOCKS ◦ Income : the goods and ◦ Wealth: All the goods a services produced each person owns. (S = Y – C – NT) ◦ Savings by governments NT – G = savings ◦ Savings of foreigners M – X = foreign borrowingĢ4. Savings and Investment Investment is financed by savings Savings have three sources: ◦ Savings by households The part of income households do not spend on consumption or net taxes. ![]() Budgetary Deficits andSurpluses Spending Surplus ◦ Goods and services G + Tr Tx Net Taxes G > Tx – Tr ◦ Tx – Tr = NT G > NTĢ3. Government revenue: ◦ Taxes ◦ (Income from Crown corporations) ◦ (Tariffs) ◦ Less Transfers to persons (part of net taxes) GST rebates, unemployment insurance, pensions, subsidies Interest on the debt (substantial) NOTE: The gov’t is not buying services, so transfers are not an expenditure.Ģ2. ![]() Government Government spending: ◦ Goods and services (G) Roads, health care, education, helicopters, police officers salaries, judges salaries. Expenditures equal Income Expenditures= C+I+G+X–M All expenditures become someone’s income so Y (income) = C + I + G + X – MĢ1. Expenditures Expenditures are purchases of goods and services. Expenditures are ◦ Consumption (C) ◦ Investment (I) ◦ Government spending (on goods and services) (G) ◦ Net Exports (X-M) Exports (X) Imports (M)Ģ0. Gross Domestic Product◦That is: Y = C + I + G + X – Mġ9. Gross Domestic ProductThe sum of the red flows equals the blue flow.ġ8. The green flows are borrowing, lending, and taxes.ġ7. Gross Domestic Product◦The blue and red flows are the circular flow of income andexpenditure. Gross Domestic ProductAnd the rest of the world borrows from us or lends to usdepending on whether net exports are positive or negative.ġ6. Gross Domestic ProductThe rest of the world buys goods and services from us, X andsells us goods and services, M-net exports are X – Mġ5. Gross Domestic Product◦Governments buy goods and services, G, and borrow orrepay debt if spending exceeds or is less than taxesġ4. The red flow Irepresents this investment expenditure by firms.ġ3. Gross Domestic Product◦Firms buy capital goods from other firms. Firms borrow some ofwhat households save to finance their investment.ġ2. Gross Domestic ProductHouseholds save, S, and pay taxes, T. The redflow, C, shows consumption expenditures.ġ1. Gross Domestic Product◦Households buy consumer goods and services. The blueflow, Y, shows total income paid by firms to households.ġ0. Gross Domestic Product Firms hire factors of production from households. Gross Domestic Product The circular flow diagram shows the transactions among households, firms, governments, and the rest of the world.ĩ. Flow of income and expenditureis present in every economicactivities A. Since every peso spent is someone’s income, the two measures give the same result.ħ. It can also be measured as all the INCOME earned from producing the goods and services. ![]() It can be measured as all the EXPENDITURES to buy the goods and services produced. GROSS DOMESTICPRODUCT The market value of all goods and services produced within a country in a given period of time. Investment Output: expenditure GDP/GNP c. ![]() Illustration of macroeconomicproblems Input: a. The Economic Problem: How do we use scarce resources to best satisfy unlimited human wants?ĥ. Factors affecting macroeconomics output (GDP or GNP) a. What is macroeconomics? Macroeconomics: analysis of the economy as a whole. Topics: Definition of Macroeconomic Macroeconomic problem Circular flow of income and expenditureģ. NoelCollege of Business Administration EducationĢ. ![]()
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