All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

Introduction to Macroeconomics Models

"There are three kinds of economics: Greek-letter, up-and-down, and airport."

Questions of the Day

Outline: Three Models of the Macroeconomy

• Circular Flow Diagram
• National Income Identity
• Aggregate Supply - Aggregate Demand Model

Abstract

This unit is designed to introduce you to three models that will be used throughout the remainder of the course, so it is worth some effort to make the investment.    The Circular Flow diagram is the first model, and it was designed to provide an overview of the macroeconomy.  It looks very muck like a wiring or plumbing diagram, and we will use it to "follow the money" through the aggregate markets in the economy. The National Income Identity, meanwhile, is a simple algebraic representation of the output market. this is where you are introduced to the VERY important equation defining aggregate demand: AD  = C + I + G + X - M. 

The unit ends with the AS-AD model, which you can view as a very close relative to the S-D model you have already mastered. We will use this model / graph repeatedly to examine economic shocks to the macroeconomy and the impact of macro policies. 

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