This document provides an overview of macroeconomics and the circular flow model. It discusses that macroeconomics considers the overall economy, connections between countries, and effects of policies. The key parts of the circular flow model show households receiving income and buying from businesses, businesses paying wages and costs, the government collecting taxes and spending, and the external sector of imports and exports. The document also lists the main objectives of macroeconomic policy as price stability, sustainable growth, low unemployment, higher living standards, trade competitiveness, and equitable distribution. It concludes by providing recent economic data for the UK.

1. AS Macro Revision
Macroeconomics, Macro Objectives and
the Circular Flow of Income
Spring 2014

2. We add new resources / links / articles every day
to our Economics blogs
Follow this link for the AS Macro Blog on Tutor2u
www.tutor2u.net/blog/index.php/economics/categories/C59

3. What is Macroeconomics?
National
Economy
• Macroeconomics considers the behaviour
of the economy as a whole
External
factors
• Macroeconomics studies connections
between different countries in the world
economic and financial system
Macro
policies
• Macroeconomics includes looking at the
effects of policies such as a change in
taxation or a change in interest rates
Key topics
• Macroeconomics involves studying
inflation, economic growth, human
development, trade and globalisation

4. The Four Key Parts of the Circular Flow Model
Households
Households receive income through wages
and salaries from their jobs and from their
investments and buy the output of firms (this
is known as consumer spending)
Businesses
Businesses hire land, labour & capital inputs
when making products for which they pay
wages and rent. Firms receive payment from
consumers (creating revenue and profit)
Government
External
Sector
Government collects taxes (T) to fund
spending on public services such as
education, healthcare and defence.
Government spending is labelled (G)
The UK buys imports from other countries,
(M) and overseas businesses and consumers
buy UK products – known as exports (X)

5. The Domestic Circular Flow of Income & Spending
Purchases of goods and services
£
Taxes
Households
Incomes
Govt
Purchases
Government
Social
Transfers
Demand
Firms
Taxes
Wages, dividends, interest, profits and rent
£

6. The External
Trade Sector
of the
Economy
Imports
Exports
Rest of the
World
Purchases of goods and services
The
Domestic
Circular
Flow
£
Households
Households
Government
Firms
Incomes
Govt
Purchases
Taxes
Government
Social
Transfers
Demand
Firms
Taxes
Wages, dividends, interest, profits and rent
£

7. What are the key objectives of macroeconomic policy?
Price Stability – i.e. Low
Positive Inflation
A Sustainable Growth of
Real GDP (National
Output)
Falling Unemployment /
More Jobs
Higher Average Living
Standards (Income per
capita)
Improved Global
Competitiveness / Trade
Balance
A More Equitable
Distribution of Income
and Wealth

8. The State of the UK Economy 2009-2014
2014 data is a forecast (Jan 2014)
2009 2010 2011 2012 2013 2014
-5.2
1.7
1.1
0.1
1.4
2.4
Unemployment rate - % of
labour force
7.6
7.9
8.1
7.9
7.8
7.5
Fiscal balance - %of GDP
-11
-10
-8.0
-6.2
-6.9
-5.9
Consumer price inflation – per
cent
2.2
3.3
4.5
2.8
2.6
2.4
Current account balance (BoP) % of GDP
-1.4
-2.7
-1.5
-3.8
-3.4
-2.5
Real GDP - % change

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macroeconomics course
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