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MACRO Chapter 2 (Part 1)

The document discusses macroeconomic concepts including national income, consumption, savings, classical and Keynesian theories, the general equilibrium model, inflation, unemployment, and fiscal and monetary policies. It specifically covers defining national income, measuring national income using the circular flow model, and issues with measurement. National income represents the total value of final goods and services produced and is an indicator of an economy's capabilities.

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zeyad Gad
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66 views14 pages

MACRO Chapter 2 (Part 1)

The document discusses macroeconomic concepts including national income, consumption, savings, classical and Keynesian theories, the general equilibrium model, inflation, unemployment, and fiscal and monetary policies. It specifically covers defining national income, measuring national income using the circular flow model, and issues with measurement. National income represents the total value of final goods and services produced and is an indicator of an economy's capabilities.

Uploaded by

zeyad Gad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Dr.

Shereen Ahmed Abdallah


( lecture no.2)
 Introduction to macroeconomics.
 National income, consumption , savings
 The classical theory
 The Keynesian theory
 General equilibrium model ( IS-LM).
 Inflation.
 Unemployment.
 Fiscal and monetary policies.
 Money and banking.
 Main Points:
 1- Definition of national income.
 2-Importance of national income.
 3- Circular flow model of income.
 4- Methods of measuring national income.
 5-Problems of measuring national income.
 6- Some concepts of national income and national
product.
National income is considered one of the
methods to measure economic performance.
National income: It is the total value of all final
goods and services produced during a
particular period, at current market prices .
Nominal national income =
NI=(Q of goods*its prices)+(Q of services*its prices).
In order to know the different methods of measuring
national income, we have to study first what is called
“Circular Flow Model Of Income”
 1-Increasing or decreasing of national
income means changing of the production
level and consequently means changing level
of employment in the economy.
 2-Welfare of any economy is measured by the
annual increase in its national income.
 3-National Income represents the amount of
economic activities in any country and thus it
is considered an indicator about the
capabilities of this country.
It is a model that traces aggregate flows of
spending and income through the four sectors
of the economy, which are:

Firms Households

Foreign Government
sector sector
We will study the model in two
cases

Closed Open
Economy Economy
In a closed economy, we assume that there is
no government or foreign sector, so the
economy consists of only 2 sectors:

Households Firms
Factors of production(land –labor- capital- entrepreneur) 1

Factors’ of production income = national income 2


(wages,Interest,rent,profits)

Firms Households 

The value of final goods and services= national product 4

Final goods and services 3


The households sector provides factors of
production to the firm sector (workers) 1
The firm sector pays incomes for the factors of
production that households supply, which
include: 2
Wages+rent+interest+profit= national income

The households sector consumes its income on


purchasing personal final goods and services 3
from the firm sector

The households sector pays the value of the


final goods and services to the firm sector 4
which is called” national product”
exports 4- imports
Foreign sector

Government 3- taxes
purchases government

investment 2- savings
Financial
markets

firms households
1- personal consumption

National income
(wages+rent+interest+profits
The households sector provides factors of production to
the firm sector. In return, the firm sector pays incomes for
the factors of production that households supply, which
include:Wages+rent+interest+profit= national income.
Households consume their income as follows:

The households sector consumes part of its income on


purchasing personal final goods and services from the 1
firm sector (personal consumption)

Households sector saves part of its income in financial


markets from which investment funds are made
2
available to firms. (Investment)
The households sector consumes part of its
income on taxes to government, by which it
purchases goods and services from firms 3
( government purchases)

The households sector consumes part of its


income on purchasing goods and services
4
from the foreign sector (imports).And in
return, the foreign sector purchases goods
and services from the firm sector (exports).
Net exports= Exports- Imports
So we can conclude from circular flow model that:
 The production of a given value of goods and services
generates an equal value of income.
 So GDP can be measured both as the total value of output
produced and as the income generated in producing that
output.

• GDP=Personal
: 
GDP as a measure
consumption+invesment+governmnt
of output purchases+net exports

GDP as a measure • GDP=GDI=Wages+rent+interest


+profits
of income

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