Summary IB Economics Notes Chapter 13-15

IB Economics Notes Chapter 13-15 Define 'macroeconomics': - The study of a national economy List the five (5) main macroeconomic variables and their objectives - 1)Economic growth - A steady rate of increase of national output 2)Employment - A low level of unemployment 3)Price stability - A low and stable rate of inflation 4)External stability - A favorable balance of payments position 5) Income distribution - An equitable distribution of income Describe how saving is a leakage and explain how it will cause the amount of income circulating in the economy to fall: - Saving is a leakage because it is income received but not used to finance expenditure on goods and services Describe how investment is an injection and explain how it will cause the amount of income circulating in the economy to rise: - Investment is an injection because firms use income from outside of the households in the circular flow, and allows the amount of income circulating in the economy to rise Describe how imports are a leakage: - Imports are a leakage because it represents expenditure of income not returning to the firms Describe how exports are an injection: - Exports represent a source of income not coming directly from the household Describe how taxes are a leakage: - Taxes take money out from the circular flow of the economy Describe how government spending is an injection: - Government spending puts money back into the circular flow Define 'transfer payments' and provide examples; injection? - Payments to individuals that are not the result of an increase in output; not an injection; pensions, unemployment benefits, child allowance payments Describe when the economy is in equilibrium: - When leakages are equal to injections Describe the three (3) different methods used to calculate Gross Domestic Product (GDP): - 1) output: Measuring the actual value of all the goods and services produced, summing up all of the value added by all the firms in an economy