Discuss The Three Basic Purposes Of Macro Economic Theory

Question 1
1.1 The three basic purposes of macroeconomic theory are ideas on how things work. (Mohr, 2012, p. 12)
Explain how everything may be connected in the actual business world.
Predict and foresee possible changes that may occur in the immediate or distant future with relative accuracy.
Serve a basis for analysing and forming decisions towards the economic policy. (Mohr, 2012)

1.2

1.3 Households provide the labour and capital (factors of production) at the factor market where by all those factors are purchased by the firms and joined to create goods and services for the goods market. The government’s main functions are to pass laws, collect taxes. The government then also buys a section of the GDP to account as government purchases which is putting money back into the flow, which is called injection. The government takes money in the form of taxes which is a leakage from the flow from the households to the firms. These taxes are then used in government spending where the money is injected back into the Goods and Factor markets. The firms and households pay taxes and the government will then use them in the form injecting into public goods

The elements for GDP are as follows, the market value is the prices of goods which often are affected by supply and demand. The final goods and services is where the product are now reaching the consumer who exchanges money for it. Produced goods are made within this year are counted towards this year’s GDP. Borders of a country is the production of all the goods be counted “within the boundaries” of a country. It isn’t particular to local consumption only. Period of time is usually measured over one year for GDP but there are figures published every quarter in the year. Gross means there is no “provisions for depreciation” of the capital which a country uses in the production