Macroeconomic Introduction: Circular Flow Diagram

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Macroeconomic IntroductionCircular Flow Diagram

• Econ 2105 Principles of Macroeconomics
• Dr. Jon Mansfield Summer 2009

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Basic Economic System
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Closed Private Economy
C Consumption
Income
Y Income
Expenses
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Closed Mixed Economy
C Consumption
Income
I Investment
Financial capital
S Saving
Y Income
Expenses
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Open Mixed Economy
C Consumption
Income
I Investment
G Government
T Taxes
Financial capital
S Saving
Y Income
Expenses
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Building the Macroeconomic Model
Spending (C I G X M) GDP Taxes Interest
rates Confidence Wealth Credit Competition Fiscal
Policy Exchange Rates Foreign GDP
Federal Reserve Policy Interest rates GDP
growth Inflation
Open Economy Exchange Rates Foreign GDP Domestic
Foreign Interest rates
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Building the Macroeconomic Model
Overall Demand (Aggregate Demand - AD Curve)
Productive Capability (Aggregate Supply - AS
Curve)