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AGGREGATE OUTPUT: The macroeconomy's total production of final goods and services. You might recognized it by it's official term gross domestic product. Another related term is aggregate supply. This is the total production in the economy that is purchased by the four basic economic sectors -- household, business, government, and foreign. See also aggregate market, aggregate demand, aggregate expenditures.

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Lesson Contents
Unit 1: Basic Flow
  • Overview
  • Four Sectors
  • Three Markets
  • The Physical Flow
  • The Payment Flow
  • Unit 1 Summary
  • Unit 2: Financial Markets
  • The Paper Economy
  • Saving
  • Investment
  • Unit 2 Summary
  • Unit 3: Government
  • What It Does
  • Taxes
  • Government Purchases
  • Government Borrowing
  • Unit 3 Summary
  • Unit 4: Foreign
  • Foreign Trade
  • Exports and Imports
  • Unit 4 Summary
  • Unit 5: Real World
  • Expenditures
  • Production And Income
  • Investment
  • Government Spending
  • Saving
  • Unit 5 Summary
  • Course Home
    Circular Flow

    This lesson introduces the circular flow model of the macroeconomy. The circular flow is a simple model based on the buying and selling relation between the household and business sectors which occurs through the product and factor markets. As a bonus, we complicate the simply circular flow model, by including the government and foreign sectors, and the financial markets. This lesson introduces several important macroeconomic concept, but more importantly, provides a useful model for interpreting macroeconomic activity.

    • In the first unit, we get an introduction to the simplest circular flow model that includes the household and business sectors and the product and factor markets.
    • The second unit builds on the simple model by introducing the financial markets, which highlights the importance of household saving and business investment.
    • The circular flow is expanding further in the third unit, with the introduction of the government sector, which highlights how taxes are diverted away from the household sector.
    • The fourth unit adds one more sector to the circular flow model, the foreign sector, which illustrates the roles played exports and imports.
    • The fifth unit wraps up this lesson by showing how several key measures of production and income revealed in the analysis of gross domestic production related to the circular flow.

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    KEYNESIAN AGGREGATE SUPPLY CURVE

    An aggregate supply curve--a graphical representation of the relation between real production and the price level--that reflects the basic principles of Keynesian economics. The Keynesian aggregate supply curve actually comes in two versions. The basic version is reverse-L shaped, with a horizontal segment connected to a vertical segment at a sharp corner. The modified version is also reverse-L shaped, but the vertical and horizontal segments have positive slopes and connecting corner is rounded. An alternative is the classical aggregate supply curve.

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    Today, you are likely to spend a great deal of time surfing the Internet looking to buy either a green and yellow striped sweater vest or a Boston Red Sox baseball cap. Be on the lookout for strangers with large satchels of used undergarments.
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    Junk bonds are so called because they have a better than 50% chance of default, carrying a Standard & Poor's rating of CC or lower.
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