Transcript Macroeconomics & Circular Flow

Macroeconomics &
Circular Flow of the
Economy AP Macroeconomics
Circular Flow of Goods & Services
Why does output fluctuate?
 As output prices rise and fall, the amount of goods and services
people have increases and decreases
 Thus, the standard of living rises and falls, and people are better
off or worse off
 Changes in output causes changes in the number of people
employed
Macroeconomics looks at the
determinants (factors) of
output fluctuation and how
these factors can be
controlled.
What determines economic
growth?
•Remember, fluctuations in output
from year to year affect the standard
of living
•Similarly, the long-run growth in
output is important for society’s
welfare
Growth in the economy depends
on the following determinants:
 number of workers
 education and
training of workers
 technological
advances
• amount of
machinery and
technology labor
has to work with
• basic material
sources
Which government policy affects
output, growth, unemployment,
and inflation?
$$$$FISCAL$$$$ policy!
“What the deuce is that?” Fiscal policy is a summary of the
government’s decisions about expenditures and taxation.
Government decisions about taxes and how much it will
spend affect the level of output, growth, unemployment,
and inflation.
How do changes in the amount of $money$
in the economy affect growth, output,
unemployment, and inflation?
 The decisions of the central bank—the Federal Reserve in
the United States—determine the amount of money in the
economy.
 The amount of money in the economy (i.e. MONEY SUPPLY)
in conjunction with how much money society wants to use
determine the interest rate.
$ SUPPLY + $ SOCIETY WANTS TO USE = INTEREST RATE
How do domestic economic
activities affect other countries
and our trade?
 A nation’s economy does not operate independent of
other countries’ economies!
 Trade policies, monetary policies, and fiscal policies all
affect the impact of the domestic economy on the
economies of other nations
Circular Flow of Goods & Services
And Now…
www.reffonomics.com
Macroeconomics
 The Economics of Seinfeld.
http://yadayadayadaecon.com/clip/
 Krugman, Paul, and Robin Wells. Krugman’s
Economics for AP. New York, Worth Publishers.
 Reffonomics. www.reffonomics.com.