Outline: The Business Cycle and Macroeconomics Objectives - Essay Example

Submitted by: XXXXXXX Number: XXXXXXX XXXXXX XXXXXXX XXXXXX of XXXXXXX Submission: XX – XX – 2009 Outline: The Business Cycle and Macroeconomics Objectives I. Introduction: A. Considering a short term, the four main objectives i.e. of faster output growth, lower unemployment, lower levels of inflation and the avoidance of balance of payments, are all interrelated. B. Relationship between demand and the phase of the business cycle are different at different times. II. The Circular Flow of Income: A.

“The circular flow of income is a simple model of the economy showing flows of goods and services and factors of production between firms and households. In the absence of government and international trade this simple model shows that households provide the factors of production for firms who produce goods and services. In return the factors of production receive factor payments, such as wages, which in turn are spent on the output of firms” (Bized). B. The Inner flow of money within factories and households. i) Consumption of Domestically produced Goods and Services: This refers to the direct flow of money in terms of payments from households to the firms (Solman and Sutcliffe). ii) Withdrawals / Leakages: This refers to the incomes of the households or the firms and factories that do not pass through the inner flow.

Withdrawals can be expressed as Net Savings (S) + Net Taxes (T) + Import Expenditure (M). iii) Injections: This refers to the inflow of money into the firms from sources outside the inner flow of income. This can be expressed as Investments (I) + Government Expenditure (G) + Expenditure on Exports (X). C. Relationship between Withdrawals and Injections. III. Macroeconomic Objectives and the Circular Flow of Income: A) Economic Growth B) Reduced Unemployment C) Rise of Inflation D) Deterioration of Balance of Payments Works Cited Bized.

The National Income Accounts: Measuring the Circular Flow of Income. 2009. 25 October 2009 . Solman, Jack and Mark Sutcliffe. Ecnomics for Business, Third Edition. London: Pearson Education Limited, 2004.