Macroeconomics
Circular Flow ......................................................................................................................................... 1
Concepts ........................................................................................................................................... 1
Factors Of Production And Rewards .................................................................................................. 6
Participants In The Circular Flow ....................................................................................................... 6
Calculations Of GDP At Factor Cost Within The Circular Flow Model ................................................ 6
Leakages And Injections .................................................................................................................... 7
Economies In Equilibrium And Disequilibrium .................................................................................. 7
Markets ............................................................................................................................................. 8
Demand And Supply.......................................................................................................................... 8
National Accounting Aggregates ....................................................................................................... 9
CPI And Inflation ............................................................................................................................... 9
Final And Intermediate Goods ........................................................................................................ 10
National Accounting Aggregates And Conversions .......................................................................... 10
The Multiplier ................................................................................................................................. 10
Business Cycles ................................................................................................................................... 12
Concepts ......................................................................................................................................... 12
Business Cycles Overview ............................................................................................................... 16
Business Cycle Phases ..................................................................................................................... 17
Real Business Cycles ........................................................................................................................ 17
Business Cycle Explanations ............................................................................................................ 18
Types Of Business Cycles ................................................................................................................. 19
Government Policy .......................................................................................................................... 19
Monetary Policy .............................................................................................................................. 19
Expansionary Monetary Policy ........................................................................................................ 20
Contractionary Monetary Policy ..................................................................................................... 20
Fiscal Policy ..................................................................................................................................... 21
The New Economic Paradigm (Smoothing Business Cycles) ............................................................ 22
Graphs And Curves .......................................................................................................................... 22
Supply-Side Policies......................................................................................................................... 23
Forecasting Business Cycles ............................................................................................................ 25
Other Forecasting Features ............................................................................................................. 25
Public Sector ....................................................................................................................................... 27
Concepts ......................................................................................................................................... 27
Economies And Governments ......................................................................................................... 31
, Composition Of The Public Sector ................................................................................................... 31
Necessity Of The Public Sector ........................................................................................................ 31
Problems With Public Sector Provisioning ...................................................................................... 32
Macroeconomic Objectives ............................................................................................................. 33
Budgets ........................................................................................................................................... 33
The Main Budget ............................................................................................................................. 33
Provincial Budgets ........................................................................................................................... 34
Municipal Budgets .......................................................................................................................... 34
Fiscal Policy ..................................................................................................................................... 34
Countercyclical Policies ................................................................................................................... 36
Laffer Curve ..................................................................................................................................... 36
Public Sector Failure ........................................................................................................................ 37
Foreign Exchange Markets .................................................................................................................. 39
Concepts ......................................................................................................................................... 39
Demand Reasons For International Trade ....................................................................................... 42
Supply Reasons For International Trade .......................................................................................... 42
Effects Of International Trade ......................................................................................................... 43
Balance Of Payments ...................................................................................................................... 44
Current Account .............................................................................................................................. 44
Capital Transfer Account ................................................................................................................. 44
Corrections Of Balance Of Payment Disequilibria ........................................................................... 44
Balance Of Payments Composition ................................................................................................. 46
Foreign Exchange Markets .............................................................................................................. 47
Demand Of Foreign Exchange ......................................................................................................... 47
Supply Of Foreign Exchange ............................................................................................................ 47
Exchange Rate Equilibrium .............................................................................................................. 47
Changes To The Demand And Supply For Foreign Exchange ........................................................... 48
Interventions In The Market ........................................................................................................... 49
The Establishment Of Foreign Exchange Rates ................................................................................ 49
Terms Of Trade ................................................................................................................................ 49
General Knowledge ......................................................................................................................... 51
,Circular Flow
Concepts
Circular Flow Model Simplified economic model
illustrating the relationship between
income, production and expenditure
within an economy and depicting
the interdependence of an
economy’s participants. Can be used
to calculate figures such as GDP and
GNI.
Real Flows The flows (buying and selling) of
output and the factors of production
used to produce the output
Money Flows The flows (receival and earning) of
income and expenditure (salaries,
wages, loans, investments, taxes, etc.)
Open Economy An economy which trades with the
rest of the world, partaking in
international trade relations with
other countries and having the
foreign sector as an economic
participant. Produces the four-sector
economy.
Closed Economy No international trade is present, and
the foreign sector is not an economic
participant. Everything which is
produced is consumed. Produces the
three-sector economy.
GPD Gross domestic product: value of all
final goods and services produced
within the borders of a country
within a specific period of time,
typically a year.
GDE Gross domestic expenditure:
expenditure by the domestic sectors
on final output produced at home
and abroad.
What can earnings from exports be Financing of imports.
used for?
Revenue Gross sales/cash receipts received by
a business from customers while
providing goods or services.
(Turnover or sales)
Income Reward paid to the owners of factors
of production when their factors of
production are used to produce
output. (In the form of salaries,
wages, etc.)
1|Pa ge
, Profit Given to business owners and
entrepreneurs, equal to the revenue
less the expenses. (Earnings)
Total Income Amount paid to the owners of the
factors of production.
Total Expenditure Expenditure by households, firms,
the foreign sector and the
government on final goods and
services.
Value of output at factor cost How much it costs firms to employ
the factors of production used to
produce their output
Leakages Amounts of money that flow out of
the circular flow of income and
expenditure.
Indirect Taxes Taxes that are not placed directly on
the income of households and firms,
but rather on their spending or by
other means such as VAT (value-
added tax).
Injections Add money to the circular flow of
income and expenditure.
PAYE Pay-as-you-earn: a form of tax on
income payments to employees.
Amounts of money are withheld as
advance payments of income tax.
GNI Gross National Income: The value of
final output produced by the citizens
of a country irrespective of where
they are located within a given
period, typically a year.
JSE Johannesburg Stock Exchange: A
controlled and regulated platform for
the trading of shares in companies
listed on the JSE.
Market A mechanism that brings buyers and
sellers together which makes the
exchange of goods and services
possible.
Macroeconomics The study of the economy as a whole,
where economists study
aggregates/totals.
Output/Goods/Product market Markets where consumer goods and
services are traded.
Goods Tangible items that satisfy human
wants and needs.
Capital goods Physical assets required to produce
goods and services.
Consumer goods Semi-final and final goods purchased
by the economic participants for
consumption.
2|Pa ge
Circular Flow ......................................................................................................................................... 1
Concepts ........................................................................................................................................... 1
Factors Of Production And Rewards .................................................................................................. 6
Participants In The Circular Flow ....................................................................................................... 6
Calculations Of GDP At Factor Cost Within The Circular Flow Model ................................................ 6
Leakages And Injections .................................................................................................................... 7
Economies In Equilibrium And Disequilibrium .................................................................................. 7
Markets ............................................................................................................................................. 8
Demand And Supply.......................................................................................................................... 8
National Accounting Aggregates ....................................................................................................... 9
CPI And Inflation ............................................................................................................................... 9
Final And Intermediate Goods ........................................................................................................ 10
National Accounting Aggregates And Conversions .......................................................................... 10
The Multiplier ................................................................................................................................. 10
Business Cycles ................................................................................................................................... 12
Concepts ......................................................................................................................................... 12
Business Cycles Overview ............................................................................................................... 16
Business Cycle Phases ..................................................................................................................... 17
Real Business Cycles ........................................................................................................................ 17
Business Cycle Explanations ............................................................................................................ 18
Types Of Business Cycles ................................................................................................................. 19
Government Policy .......................................................................................................................... 19
Monetary Policy .............................................................................................................................. 19
Expansionary Monetary Policy ........................................................................................................ 20
Contractionary Monetary Policy ..................................................................................................... 20
Fiscal Policy ..................................................................................................................................... 21
The New Economic Paradigm (Smoothing Business Cycles) ............................................................ 22
Graphs And Curves .......................................................................................................................... 22
Supply-Side Policies......................................................................................................................... 23
Forecasting Business Cycles ............................................................................................................ 25
Other Forecasting Features ............................................................................................................. 25
Public Sector ....................................................................................................................................... 27
Concepts ......................................................................................................................................... 27
Economies And Governments ......................................................................................................... 31
, Composition Of The Public Sector ................................................................................................... 31
Necessity Of The Public Sector ........................................................................................................ 31
Problems With Public Sector Provisioning ...................................................................................... 32
Macroeconomic Objectives ............................................................................................................. 33
Budgets ........................................................................................................................................... 33
The Main Budget ............................................................................................................................. 33
Provincial Budgets ........................................................................................................................... 34
Municipal Budgets .......................................................................................................................... 34
Fiscal Policy ..................................................................................................................................... 34
Countercyclical Policies ................................................................................................................... 36
Laffer Curve ..................................................................................................................................... 36
Public Sector Failure ........................................................................................................................ 37
Foreign Exchange Markets .................................................................................................................. 39
Concepts ......................................................................................................................................... 39
Demand Reasons For International Trade ....................................................................................... 42
Supply Reasons For International Trade .......................................................................................... 42
Effects Of International Trade ......................................................................................................... 43
Balance Of Payments ...................................................................................................................... 44
Current Account .............................................................................................................................. 44
Capital Transfer Account ................................................................................................................. 44
Corrections Of Balance Of Payment Disequilibria ........................................................................... 44
Balance Of Payments Composition ................................................................................................. 46
Foreign Exchange Markets .............................................................................................................. 47
Demand Of Foreign Exchange ......................................................................................................... 47
Supply Of Foreign Exchange ............................................................................................................ 47
Exchange Rate Equilibrium .............................................................................................................. 47
Changes To The Demand And Supply For Foreign Exchange ........................................................... 48
Interventions In The Market ........................................................................................................... 49
The Establishment Of Foreign Exchange Rates ................................................................................ 49
Terms Of Trade ................................................................................................................................ 49
General Knowledge ......................................................................................................................... 51
,Circular Flow
Concepts
Circular Flow Model Simplified economic model
illustrating the relationship between
income, production and expenditure
within an economy and depicting
the interdependence of an
economy’s participants. Can be used
to calculate figures such as GDP and
GNI.
Real Flows The flows (buying and selling) of
output and the factors of production
used to produce the output
Money Flows The flows (receival and earning) of
income and expenditure (salaries,
wages, loans, investments, taxes, etc.)
Open Economy An economy which trades with the
rest of the world, partaking in
international trade relations with
other countries and having the
foreign sector as an economic
participant. Produces the four-sector
economy.
Closed Economy No international trade is present, and
the foreign sector is not an economic
participant. Everything which is
produced is consumed. Produces the
three-sector economy.
GPD Gross domestic product: value of all
final goods and services produced
within the borders of a country
within a specific period of time,
typically a year.
GDE Gross domestic expenditure:
expenditure by the domestic sectors
on final output produced at home
and abroad.
What can earnings from exports be Financing of imports.
used for?
Revenue Gross sales/cash receipts received by
a business from customers while
providing goods or services.
(Turnover or sales)
Income Reward paid to the owners of factors
of production when their factors of
production are used to produce
output. (In the form of salaries,
wages, etc.)
1|Pa ge
, Profit Given to business owners and
entrepreneurs, equal to the revenue
less the expenses. (Earnings)
Total Income Amount paid to the owners of the
factors of production.
Total Expenditure Expenditure by households, firms,
the foreign sector and the
government on final goods and
services.
Value of output at factor cost How much it costs firms to employ
the factors of production used to
produce their output
Leakages Amounts of money that flow out of
the circular flow of income and
expenditure.
Indirect Taxes Taxes that are not placed directly on
the income of households and firms,
but rather on their spending or by
other means such as VAT (value-
added tax).
Injections Add money to the circular flow of
income and expenditure.
PAYE Pay-as-you-earn: a form of tax on
income payments to employees.
Amounts of money are withheld as
advance payments of income tax.
GNI Gross National Income: The value of
final output produced by the citizens
of a country irrespective of where
they are located within a given
period, typically a year.
JSE Johannesburg Stock Exchange: A
controlled and regulated platform for
the trading of shares in companies
listed on the JSE.
Market A mechanism that brings buyers and
sellers together which makes the
exchange of goods and services
possible.
Macroeconomics The study of the economy as a whole,
where economists study
aggregates/totals.
Output/Goods/Product market Markets where consumer goods and
services are traded.
Goods Tangible items that satisfy human
wants and needs.
Capital goods Physical assets required to produce
goods and services.
Consumer goods Semi-final and final goods purchased
by the economic participants for
consumption.
2|Pa ge
