Concepts of Macro Economics
The important concepts used in macro economics are presented below:
Stock and Flow Variables
Variables used in economic analysis are classified as stock and flow. Both stock and flow variables may increase or decrease with time.
Stock refers to a quantity of a commodity measured at a point of time. In macro economics, money supply, unemployment level, foreign exchange reserves, capital etc are examples of stock variables.
Flow variables are measured over a period of time. National Income, imports, exports, consumption, production, investment etc are examples of flow variables.
Economic Models A model is a simplified representation of real situation. Economists use models to describe economic activities, their relationships and their behaviour. A model is an explanation of how the economy, or part of the economy, works. Most economic models are built with mathematics, graphs and equations, and attempt to explain relationships between economic variables. The commonly used economic models are the supply-demand models and circular flow models and Smith models.