Chapter 1 Summary
  • _____ economics looks at the big picture, at what things like income, __________, unemployment and inflation look like after we added everything up.
  • The circular flow model shows the real and ________ flows between households and firms. It can be enhanced to account for interactions with the government sector and _______ _________. Leakages out of and __________ into this circle always balance. At the core of this 'model' is the identity between income and output on the one hand, and between ________ and output on the other.
  • Output, income and spending all measure the same thing. Depending on whether we define a country by its geographic boundaries or by its residents, the empirical counterpart of these concepts is _______ _________ ________ or _______ _________ _________.
  • The central bank is the arm of the government responsible for __________ policy. If the central bank provides the economy with more money, this _______ nominal income, which is defined as the price level times real income. Only economic analysis (to be provided in later chapters) will reveal under what circumstances it is more likely for the price level to rise or for real income to rise.
  • The national income accounts reveal who buys aggregate ________ and how aggregate income is spent.
  • The __________ budget records the interaction between the private sector and the government sector. It also reveals how the government finances budget surpluses or ________.
  • The ________ _____ _________ records the interaction with the rest of the world. It also reveals how imbalances in the trade of goods and ________ are being financed.
  • Economists work with simplified pictures of the world which they call ________. ________ are instrumental in understanding the key economic issues in today's world.

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