Macro-Economics Quiz

Introduction to Macro-Economics: Scope, Schools of Thought, and Circular Flow of Income and Product

• Macro-economics studies economic problems related to the economy as a whole, focusing on aggregates and averages such as national income, total employment, aggregate saving and investment, AD, and AS.
• In macroeconomics, broad aggregates are divided into sub-aggregates, and the behavior of these sub-aggregates is studied separately.
• The scope of macro-economics includes the theory of national income, employment, money, general price level, economic growth, and international trade.
• There are two schools of thought in macro-economics: the classical school and the Keynesian school.
• The classical school believes in "Supply creates Demand" and that full employment is an automatic phenomenon, while the Keynesian school believes in "Demand creates Supply" and that government intervention is necessary to generate employment.
• Micro and Macro Economics are complementary to each other, not exclusive, and interdependent branches of economics.
• The circular flow of income and product involves the flow of goods and services and factor service and their corresponding flow of payment and receipts across different sectors.
• The economic agents are consumers, producers, and the government, and the macro-economy is divided into different sectors: producers, households, the government, the rest of the world, and the financial sector.
• The circular flow of income and product in a two-sector model involves real flow and money flow between producers and households.
• The circular flow of income and product in a three-sector model involves real flow and money flow between producers, households, and the government.
• The circular flow of income and product in a four-sector model involves real flow and money flow between producers, households, the government, and the rest of the world.
• The basic principle of circular flow of income is that the receipt of one sector is equal to the payment to another sector, and real flow and money flow are mutually dependent on each other.