‘$7 Economics Notes Introduction to Macroeconomics Macroeconomics is the study of aggregate economic behavior. These include the relations between aggregate economic variables like total consumption, total investment, national income and aggregate employment. Some Common Concepts in Economic Models 1_Funetions ‘A function is a particular type of relation. For example, a consumption function shows the relationship between planned consumption expenditure and disposable income in an economy. C=cY 2. Stock and flow variables A flow variable has a time dimension; it is so much per period of time . e.g. Qd of a good is a flow variable. Astock variable has no time dimension; itis just so much at particular point of time. e.g. Mary holds a stock of 100 computers. Although inventory held by a producer is a stock concept, the change in inventories over time is a flow concept. For example, if the amount of a good in the producer's warehouse increased from 1000 units to 1,200 units after one year, then the increase in inventories is 200 units per year (a flow), 3. Exogenous and endogenous variables. ‘An endogenous variable is one that is explained and determined within a theory or model. A change in an endogenous variable is classified as an induced change. ‘An exogenous variable is one that influences another variable, but is itself determined by factors outside the theory or model. A change in an exogenous variable is classified as an autonomous change. 4. Ex-ante and ex-post Ex-ante means anticipated, planned, intended or desired. Ex-ante values are values which people have predicted or which they expect beforehand. Ex-post means realized or actual. Ex-post values are actual values. (Refer to p10 p11 of Advanced Level Macroeconomics , Dr. Lam Pun Lee)Planned Qd and planned Qs are not observable in real life. On the other hand, actual Qd and actual Qs are observable. In other words, we don’t observe an excess of ex-post Qs over ex-post Qd; the unsold units must be treated by some means, such as purchased by the sellers themselves ( . increasing inventories). Similarly, ex-post Qd cannot be in excess of ex-post Qs. The units of goods sold to (or purchased by) consumers in a particular period must be equal to the units produced in that period. The inventory units sold should not be regarded as current output, since these units were not produced during the current period. 5. Ee Equilibrium is a concept of describing a situation in which there are no internal or inherent forces that will produce change. For example, when ex-ante Qd is equal to ex-ante Qs, the market is in a state of equilibrium. In equilibrium, ex-post Qd = ex-post Qs = ex-ante Qd = ex-ante Qs.