notes_macro_ch2 - MACROECONOMICS Georgios Karras*...

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Macro Notes © G.Karras 2010 MACROECONOMICS Georgios Karras* University of Illinois at Chicago * Professor of Economics; Mailing Address: Department of Economics, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL 60607-7121; e-mail: gkarras@uic.edu . Lecture Draft Do not cite without permission
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Macro Notes © G.Karras 2010, p.2 ││ 2 ││ MEASUREMENT 2.1. GDP Circular Flow Diagram #1 : Simple Case Assume (for now): No Government, No Foreign Sector Simple, though unrealistic, case (to be generalized next) Three types of economic units: Households Firms Financial Intermediaries
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Macro Notes © G.Karras 2010, p.3 Households Firms Financial intermediaries Real flows Monetary flows Factors of production Income $Y C o n s u m p t i e x d r $C assets assets Saving Investment $S $I
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Macro Notes © G.Karras 2010, p.4 Households: Firms: S C Y + I C Y + So, Aggregate Economy: I S Interpretation: the only way to finance (domestic) investment is through (domestic) savings.
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Macro Notes © G.Karras 2010, p.5 Circular Flow Diagram #2 More Realistic Case: Open Economy with Government Sector Five economic units: Households (H) Firms (F) Financial Intermediaries (FI) Government (Gov) Rest of the world (RoW)
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Macro Notes © G.Karras 2010, p.6 Households Firms Financial intermediaries Monetary flows Income $Y C o n s u m p ti e x d i t r $C Private Saving Investment $Sp $I Government Taxes (net) Gov’t purchases $T $G RoW G v ’t ic a Imported goods and services $IM E g c $EX
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Macro Notes © G.Karras 2010, p.7
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notes_macro_ch2 - MACROECONOMICS Georgios Karras*...

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