Introduction to Macroeconomics

Macroeconomics studies relationships and connections between one country and another for example, how a slowdown in the Chinese or the Brazilian economy can affect UK businesses. Or how a change in the exchange rate affects British firms exporting to countries around the world

The scope of macroeconomics includes looking at the success or failure of government policies – for example does the Coalition have effective and fair policies for cutting unemployment? Or has the government succeeded in creating the conditions for a durable and balanced recovery?

Macroeconomics involves looking at some big numbers! GDP is a good example, or figures for a country’s balance of payments. 
In macroeconomics we look at things ‘in the whole’ and, in doing so, we use these terms:
Households: receive income through wages and salaries from their jobs and from their investments and then buy the output of firms (this is known as consumer spending and is labelled as C)
Firms: Businesses hire land, labour and capital inputs when making products for which they pay wages and rent (income). Firms receive payment from consumers and profitable businesses may invest (I) a percentage of profits in new producer goods such as equipment and technology
Government: collect taxes (T) to fund spending on public services such as education, healthcare and defence. Government spending is given the label (G)
International sector: The UK buys imports from other countries, (M) and overseas businesses and consumers buy UK products – known as exports (X). International trade is important for the UK. Millions of jobs depend directly or indirectly on the UK remaining competitive in overseas market. 



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