Macroeconomy Economy refers to the system of production

Macro-economy • Economy – refers to the system of production, distribution and consumption of goods and services in a country. • Macro-economic influences refer to : – Internal factors e. g. changes in government policies, consumption, savings, investment – External factors e. g. changes in net exports, terms of trade, exchange rates, trade agreements and world economy.

Macro-economic Indicators • Inflation rate • Growth rate • Current account balance • Unemployment rate • Current position on the business trade cycle Goals of government • Price stability • Economic growth • Balanced current account • Full employment

Circular flow • Real flows – are flows between the sectors within an economy that are actual goods or resources. • Money flows – are flows of money s between the sectors within the economy. • Injections – money flows into the economy e. g. Government spending, Export receipts, Investment. • Withdrawals – money flows out of the economy e. g. Government taxation Revenue, Import payments and Savings (from the household).

Injections and Withdrawals (leakages) • Consider the economy like a bath -water flows in – water flows out • Water left in the bath represents • The countries total value of production or • GDP – Gross Domestic Product or the total value of all final goods and services produced in a country over a period of time. • Injections can stimulate more production and money circulation. Leakages can reduce the economy slowing down production and growth.

Sectors and leakages/injections Injections Sector of the economy Government spending G sector Export payments Overseas sector X Investment I Financial institutions Withdrawal (leakages) Taxation e. g. T PAYE, GST Import payments M Savings S

GDP = C + I + G + (X-M) C = Consumption spending I = Investment - (purchases of capital goods) G = Government spending X-M = Net exports (Trade Balance) - Exports minus Imports • Transfer payments are not including in the calculation as they are money received from taxation paid to beneficiaries e. g. Dole, Superannuation, Sickness benefits, DBP. • •

Exercises 1 Classify the following events according to one of the four terms - Savings, Production, Investment, Consumption. Event Category The buying of new technology for a company A farmer builds a stockyard. A student buys lunch at the school tuck-shop A security firm pays for new vehicles. A security firm goes around and checks its customers premises A furniture factory worker starts on manufacturing a new chair A computer technician fixes up a firms computer 2 Explain the difference between savings and investment?