Chapter 4 THE CIRCULAR FLOW
Chapter 4 THE CIRCULAR FLOW
4.1 THE EXPANDED CIRCULAR FLOW MODEL
4.1 THE EXPANDED CIRCULAR FLOW MODEL
4.2 GOVERNMENT FINACIAL MARKETS AND INTERNATIONAL MARKETS >4.2.1 Government the provision of law and order services the provision of goods and other services improving equity in the distribution of income influencing the general economic climate
4.2 GOVERNMENT, FINACIAL MARKETS AND INTERNATIONAL MARKETS ➢ 4.2.1 Government ⚫ the provision of law and order services; ⚫ the provision of goods and other services; ⚫ improving equity in the distribution of income; ⚫ influencing the general economic climate
4.2.2 Financial markets Meaning Financial institutions through which savers can directly provide funds to borrowers Borrowers -demanders of finance households, firms and governments that choose to spend more than they earn in income or collect in revenue at some point in time Savers -suppliers of finance households, firms and government that choose to spend less than they earn in income or raise in revenue at some point in time Saving part of income or revenue that is not spent at some point in time or the postpone spending until some time in the future
4.2.2 Financial markets ➢ Meaning ⚫ Financial institutions through which savers can directly provide funds to borrowers. ➢ Borrowers – demanders of finance ⚫ households, firms and governments that choose to spend more than they earn in income or collect in revenue at some point in time. ➢ Savers – suppliers of finance ⚫ households, firms and government that choose to spend less than they earn in income or raise in revenue at some point in time. ➢ Saving ⚫ part of income or revenue that is not spent at some point in time, or the postpone spending until some time in the future
1 The Bond market Bond a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond (IOU Attributes term: the length of time until the bond matures credit risk: the probability that the borrower will fail to pay some of the interest or principal( default) tax treatment: the way in which the tax laws treat the interest earned on the bond
1. The Bond Market ➢ Bond ⚫ a certificate of indebtedness that specifies the obligations of the borrower to the holder of the bond. (IOU) ➢ Attributes ⚫ term: the length of time until the bond matures ⚫ credit risk: the probability that the borrower will fail to pay some of the interest or principal. (default) ⚫ tax treatment: the way in which the tax laws treat the interest earned on the bond
2 The Stock Market Stock a claim to partial ownership in a firm equity finance vs debt finance stock exchange, e.g. New York Stock EXchange, the American Stock EXchange, NASDAQ(National Association of securities Dealers automated Quotation system) prices are determined by the supply and demand for the stock in these companies stock index: an average of a group of stock prices
2. The Stock Market ➢ Stock ⚫ a claim to partial ownership in a firm ⚫ equity finance vs debt finance ⚫ stock exchange, e.g. New York Stock Exchange, the American Stock Exchange, NASDAQ (National Association of Securities Dealers Automated Quotation system) ⚫ prices are determined by the supply and demand for the stock in these companies. ⚫ stock index: an average of a group of stock prices
3. Bank Financial intermediaries financial institutions through which savers can indirectly provide funds to borrowers Bank's primary job to take in deposits from people who want to save and use these deposits to make loans to people who want to borrow
3. Bank ➢ Financial intermediaries ⚫ financial institutions through which savers can indirectly provide funds to borrowers ➢ Bank’s primary job ⚫ to take in deposits from people who want to save and use these deposits to make loans to people who want to borrow
4.23 International market > Export the factors and products that supply to overseas markets >Import o the factors and products that demand from overseas Current account balance deficit: import export surplus: import export
4.2.3 International market ➢ Export ⚫ the factors and products that supply to overseas markets ➢ Import ⚫ the factors and products that demand from overseas ➢ Current account balance ⚫ deficit: import > export ⚫ surplus: import < export
4.3 Measuring the size of the economy 4.3. 1 GDP(Gross Domestic Product the market value of all final goods and services produced within a country in a given period of time final versus intermediate it can be measured by adding up all expenditures on final output of firms all the incomes generated by production of final output all value added in production Classification nominal or current gDP Values of GDP that have not been adjusted for price changes real or constant GDP Values of GdP that have been adjusted for price changes Deflator the price level expressed as a decimal fraction of the original price level
4.3 Measuring the size of the economy 4.3.1 GDP (Gross Domestic Product) ➢ the market value of all final goods and services produced within a country in a given period of time ➢ final versus intermediate ➢ it can be measured by adding up ⚫ all expenditures on final output of firms ⚫ all the incomes generated by production of final output ⚫ all value added in production ➢ Classification ⚫ nominal or current GDP • Values of GDP that have not been adjusted for price changes ⚫ real or constant GDP • Values of GDP that have been adjusted for price changes ➢ Deflator ⚫ the price level expressed as a decimal fraction of the original price level
4.3.2 Other measure of income Gross national product(GNP) >Net national product(NNP) National income Personal income Disposable personal income
4.3.2 Other measure of income ➢ Gross national product (GNP) ➢ Net national product (NNP) ➢ National income ➢ Personal income ➢ Disposable personal income