9 The Economy and Business Activity 9 The Economy and Business Activity

 Microeconomics and macroeconomics  The major macroeconomic issues  economic growth  unemployment  inflation  balance of payments and exchange rates  Government macroeconomic policy  controlling various intermediate variables  interest rates, money supply, taxes, government expenditure, etc.

 The inner flow

Factor payments Factor payments Consumption of domestically produced goods and services (C d ) Consumption of domestically produced goods and services (C d ) The circular flow of income Firms Households

 Withdrawals  net saving ( S )  net taxes ( T )  import expenditure ( M )  Injections  investment ( I )  government expenditure ( G )  export expenditure ( X )

Factor payments Factor payments Consumption of domestically produced goods and services (C d ) Consumption of domestically produced goods and services (C d ) Investment (I) Government expenditure (G) Government expenditure (G) Export expenditure (X) Export expenditure (X) BANKS, etc Net saving (S) Net saving (S) GOV. Net taxes (T) Net taxes (T) ABROAD Import expenditure (M) Import expenditure (M) The circular flow of income WITHDRAWALS INJECTIONS