5. Purchases of goods and services
£
Households
Demand
Government
Firms
Supply
6. Purchases of goods and services
£
Households
Demand
Government
Firms
Supply
£
Wages, dividends, interest, profits and rent
7. Purchases of goods and services
£
Households
Demand
Government
Firms
Supply
Incomes
£
Wages, dividends, interest, profits and rent
8. Purchases of goods and services
£
Households
Demand
Government
Firms
Supply
Incomes
£
Wages, dividends, interest, profits and rent
9. Purchases of goods and services
£
Households
Taxes
Demand
Government
Firms
Supply
Incomes
£
Wages, dividends, interest, profits and rent
10. Purchases of goods and services
£
Households
Taxes
Demand
Government
Firms
Supply
Incomes
£
Wages, dividends, interest, profits and rent
11. Purchases of goods and services
£
Taxes
Households
Demand
Government
Firms
Supply
Incomes
Social
Transfers
Wages, dividends, interest, profits and rent
£
12. Purchases of goods and services
£
Taxes
Households
Demand
Government
Firms
Supply
Incomes
Social
Transfers
Wages, dividends, interest, profits and rent
£
13. Purchases of goods and services
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Wages, dividends, interest, profits and rent
£
14. Purchases of goods and services
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Wages, dividends, interest, profits and rent
£
15. Purchases of goods and services
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
£
16. ?
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
17. Rest of the
World
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
18. Rest of the
World
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
19. Imports
Rest of the
World
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
20. Imports
Rest of the
World
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
21. Imports
Exports
Rest of the
World
Purchases of goods and services
The Domestic
Circular Flow
Households
Government
Firms
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
22. Trade balance
Imports
Injections and
Leakages from
the Circular
Flow
Exports
Rest of the
World
Purchases of goods and services
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
23. Trade balance
Imports
Injections and
Leakages from
the Circular
Flow
Exports
Rest of the
World
Purchases of goods and services
£
Taxes
Households
Govt
Purchases
Government
Demand
Firms
Supply
Incomes
Social
Transfers
Taxes
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
24. Injections and
Leakages from
the Circular
Flow
Injections
Government
Spending
Investment
Exports
Leakages
Savings
Taxation
Imports
Imports
£
£
Purchases of goods and services
£
Taxes
Households
Incomes
Equilibrium
when
injections =
leakages
Exports
Rest of the
World
Govt
Purchases
Government
Social
Transfers
Demand
Firms
Taxes
£
Capital
Investment
Wages, dividends, interest, profits and rent
Production by firms generates factor incomes
£
25. Define your terms accurately!
Consumer
Spending (C)
Saving (S)
Investment (I)
26. Define your terms accurately!
Consumer
Spending (C)
Household spending on
goods and services
Saving (S)
Investment (I)
27. Define your terms accurately!
Consumer
Spending (C)
Household spending on
goods and services
Saving (S)
Deferred
spending, disposable
income that is not spent
Investment (I)
28. Define your terms accurately!
Consumer
Spending (C)
Household spending on
goods and services
Saving (S)
Investment (I)
Deferred
spending, disposable
income that is not spent
Spending on capital
goods including plant &
machinery and
infrastructure
29. Aggregate Demand (AD)
• Total demand for domestically-produced
goods and services = GDP
• AD = the sum of
Consumer spending (C)
+ Investment spending (I)
+ Government spending (G)
+ Exports of goods and services (X)
- Imports of goods and services (M)
2:18:10 PM
30. Injections into the Circular Flow
Exports (X)
Goods and services sold
to consumers (buyers) in
overseas markets
Government
Consumption
Investment (I)
State (public) sector
demand for goods and
services e.g. health and
education
Spending on capital
goods including plant &
machinery and
infrastructure
31. Leakages from the Circular Flow
Imports (M)
Goods and services
bought by domestic
consumers and
businesses from
overseas
Taxation (T)
Savings (S)
Compulsory payments
to the government –
direct and indirect taxes
Deferred
spending, disposable
income that is not spent
33. Injections and leakages
Balance of
Trade
Exports (X)
Imports (M)
Government
Consumption
Taxation (T)
Investment (I)
Savings (S)
34. Injections and leakages
Balance of
Trade
Exports (X)
Imports (M)
Government
Budget
Balance
Government
Consumption
Taxation (T)
Investment (I)
Savings (S)
35. Injections and leakages
Balance of
Trade
Exports (X)
Imports (M)
Government
Budget
Balance
Government
Consumption
Taxation (T)
Balance
between
savings and
investment
Investment (I)
Savings (S)
36. Injections and leakages
Balance of
Trade
Exports (X)
Imports (M)
Government
Budget
Balance
Government
Consumption
Taxation (T)
Balance
between
savings and
investment
Investment (I)
Savings (S)
37. Injections and leakages
When Injections > Leakages
Exports (X)
Imports (M)
Government
Consumption
Taxation (T)
Investment (I)
Then the level of
Will tend to
Savings (S)
38. Injections and leakages
When Injections > Leakages
Exports (X)
Imports (M)
Government
Consumption
Taxation (T)
Investment (I)
Then the level of
Will tend to
Savings (S)
39. Injections and leakages
When Leakages > Injections
Exports (X)
Imports (M)
Government
Consumption
Taxation (T)
Investment (I)
Then the level of
Will tend to
Savings (S)
40. Injections and leakages
When Leakages > Injections
Exports (X)
Imports (M)
Government
Consumption
Taxation (T)
Investment (I)
Then the level of
Will tend to
Savings (S)
41. Circular Flow Questions
Economic event
Which injection or
leakage is/are likely to
be most affected?
X, I, G, S, M T
On balance - what is the
likely effect on the level
of GDP– expansion or
contraction (circle your
answer)
1.
A survey finds a fall in confidence for
UK manufacturing firms
X G I S M T
() Expansion /
Contraction ()
2.
A survey finds that construction
companies expect average house
prices to rise by 5% in 2013
X G I S M T
() Expansion /
Contraction ()
3.
The pound rises in value by 10%
against the US dollar ($)
X G I S M T
() Expansion /
Contraction ()
4.
The government decides to cut wages
of civil servants
X G I S M T
() Expansion /
Contraction ()
42. Circular Flow Questions
Economic event
Which injection or
leakage is/are likely to
be most affected?
X, I, G, S, M T
On balance - what is the
likely effect on the level
of GDP– expansion or
contraction (circle your
answer)
5
China reduces in the size of an import
tariff on British-made steel
X G I S M T
() Expansion /
Contraction ()
6
A new forecast from the IMF suggests
that unemployment in the UK will fall
by 250,000 over the next two years
X G I S M T
() Expansion /
Contraction ()
7
The government increases the rate of
VAT from 20% to 22%
X G I S M T
() Expansion /
Contraction ()
43. Circular Flow Questions
Economic event
8
9
10
11
The government decides to increase
the UK road-building programme by
£500m for 2013 and 2014
The prices of many consumer goods
and services start to fall, and people
start to expect further price
reductions in the future
The Bank of England’s Monetary
Policy Committee decides to raise
official interest rates from 0.5% to 2%
over a period of months
The government decides to increase
the UK road-building programme by
£500m for 2013 and 2014
Which injection or
leakage is/are likely to
be most affected?
X, I, G, S, M T
On balance - what is the
likely effect on the level
of GDP– expansion or
contraction (circle your
answer)
X G I S M T
() Expansion /
Contraction ()
X G I S M T
() Expansion /
Contraction ()
X G I S M T
() Expansion /
Contraction ()
X G I S M T
() Expansion /
Contraction ()
44. Circular Flow Questions
Which injection or
leakage is/are likely to
be most affected?
X, I, G, S, M T
On balance - what is the
likely effect on the level
of GDP– expansion or
contraction (circle your
answer)
The government increases revenues from
taxes on high-income earners by £2bn and
uses the money to increase spending on
welfare payments to low-income families
at £2bn
Improvements in labour productivity
causes lower costs and increased profits
for car producers located in the UK
X G I S M T
() Expansion /
Contraction ()
X G I S M T
() Expansion /
Contraction ()
The Chancellor announces a reduction in
the rate of national insurance
contributions paid by small businesses
The government increases revenues from
taxes on high-income earners by £2bn and
uses the money to increase spending on
welfare payments to low-income families
at £2bn
X G I S M T
() Expansion /
Contraction ()
X G I S M T
() Expansion /
Contraction ()
Economic event
12
13
14
15
45. Tracking the UK Economic Cycle - UK Real National Output
UK Economic Cycle
Quarterly value of real GDP, £ billion measured at constant prices
400
400
380
370
370
360
360
350
350
340
340
330
330
320
320
310
310
300
300
290
290
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
billions
390
380
£ (billions)
390
13
Source: UK Statistics Commission
46. AS Macro Course Support
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