Concepts and Principles of Macroeconomics

I. INTRODUCTION OF DEFINITIONS, CONCEPTS AND PRINCIPLES OF MACROECONOMICS

I had dealt with Microeconomics during the first semester of school year 2017-2018. In comparison with Macroeconomics, I still had a hard time understanding the terms that were used during the discussions. However, in contrast to the both I finally understood how to properly plot and analyze the graphs in Macroeconomics.

        The concept of Macroeconomics is a bit similar to the concept of Microeconomics but in a wider projection. In the latter, we had only discuss the interactions between the household and the firms in which we can simply connect to our day-to-day activities. On the other side, the former covers the whole interaction of the economy from the four corners of our houses, to the whole nation and as well to our neighboring countries.

As part of the cycle of the society, it is beneficial for us to have knowledge on how things are done and why our economy stands to where it is. This knowledge could give as ideas and information on how should we behave or act in order for us to adjust on any problems or with the fluctuations on our economy.

II. SIMPLE CIRCULAR FLOW OF INCOME AND EXPENDITURES IN THE CLASSICAL ECONOMICS AND KEYNESIAN ASSUMPTIONS

The circulation of our money spent and the goods/services that we acquire flows in opposite directions. The circular flow of income and expenditure is a table showing the relationship between money and goods/services. It shows where the money spent goes through as well as what it was used for. Firms and households starts the inner circulation of the model. The firms represents as the production unit who supplies our needs and wants, and the household represents us consumers the consumption unit.         

Leakages and injections are also essential in the model. Leakages represents the part of the income which is saved, hence, savings, tax payments and imports.

Savings is self explanatory, most of us hold an appropriate part of our income or allowances for and idle time. Some save their money in order to have the ability to buy a specific item, and some save for future purposes. But coming back to classical economics, our financial sector which are the banks or other financial institutes, provides an injection which is the investment to the firms.

Another leakage-injection partners are the taxes-government spending. Without proper understanding of what tax means, it may be perceive negatively. The road construction is probably the most obvious activity in where our taxes was used.

Lastly are the import-export duo. These two represents our interaction to the rest of the world aside from our own nation. Growing up I just thought that imported goods are just simply goods produced by foreign countries and only foreign countries export their products. However, through Economics I have learned that we also have our own export products like rice and cacao beans.