Macroeconomics

The World of Macro-Economy

AIU Online

Macroeconomics: Econ224

Abstract

In this report an individual will view macro-economy functions as an open and closed system will be defined, along with inner and outer flows of each. Leakage and injections are also events that occur within macro-economy that will be described along with given examples.

Closed System

Macroeconomics is the brush that paints a picture of how the economy shows relation to the world. Unemployment, national outputs, inflation, exchange rate, interest rate and payment balances are all variables of macroeconomics.

Macro-economy has two sides, production along with money. Interest rates and national output determine the interaction between money markets and product. Fiscal and monetary policies have an effect on output, interest rate and investments; while having an indirect effect on economic growth, unemployment and inflation. Together, all these events create what we call a system of closed macro-economic.

Open System

Focusing more on its external surroundings, an open system exchanges much feedback on a regular basis. The responsive actions and investment behavior can have many fundamental differences when it comes to the economy and its effects on international trade and how it may responds to macro policy. Exchange rate along with international investment tends to play a major role in an open economy. With additional macro policy tools government is able to work on a more extensive level within the open economy as well as the control of foreign investment and exchange rate. Trade balance, also a key component in an open economy shows differentiation that occurs between the monetary value of both imports and exports over an amount of time regarding a countries economic output.

Closed System: Inner & Outer Flows

When a unit has not trade relationships or no business with any individual that falls out of that particular unit is known as a closed economy. Opposed...