Answer to Question #62188 in Macroeconomics for Waleed

Question

1. What is macro-economics? How does it differ from micro-economics?
2. Briefly discuss some important problem which constitute the main theme of macro-economics?
3. What do you mean by 'injection into' and 'leakage from' the circular flow of income? Why is saving called a leakage and investment called a injection?
4. How is the circular flow of income measured in all the four sectors of the economy?

Answer 1

1. Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole rather than individual markets. This includes national, regional, and global economies. Along with microeconomics, macroeconomics is one of the two most general fields in economics.
2. Macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research. Macroeconomic theories usually relate the phenomena of output, unemployment, and inflation. Outside of macroeconomic theory, these topics are also important to all economic agents including workers, consumers, and producers.
3. Leakage means withdrawal from the flow. They may be in form of savings, tax payments, and imports. Leakages reduce the flow of income. Injections means introduction of income into the flow. Injections can take the forms of (a) investment,(b) government spending and (c) exports.
4. Each of the four sectors receives some payments from the other in lieu of goods and services which makes a regular flow of goods and physical services. Money facilitates such an exchange smoothly. A residual of each market comes in capital market as saving which inturn is invested in firms and government sector. Technically speaking, so long as lending is equal to the borrowing i.e. leakage is equal to injections, the circular flow will continue indefinitely. However this job is done by financial institutions in the economy.