Question 1
1.1
The three basic purposes of macroeconomic theories are:
• To explain how different items are associated in the complex real economic world. In the economic environment there are unlimited wants, but the means of getting those wants are limited due to insufficient resources to satisfy all possible uses. Therefore some resources must be given priority over others.

Example: Gold has a higher value than quartz in the economic world. Gold is scarcer than quartz, so gold is a higher priority resource than quartz.

• To predict what will happen if something were altered. The economic environment is always changing, so it can be hard to distinguish between the cause and effect on certain relationships. The theory extracts important …show more content…
Spending on Consumer goods is called Consumption.

• Firms buy the four factors of production to make goods and services which they then sell to Households.

Firms aim to make a profit; they decide how to produce the goods. Spending on production is an investment. Investment spending is an injection into the circular flow of income.

• In the Goods Market, Households buy goods and services made by firms which provide them with income.

• In the Factor Market, Firms buy the four factors of production (Natural Resources, Human resources, capital, entrepreneurship and technology). This provides the households with income.

• Government spends money on the economy, providing goods and services such as health care and education to firms and households. This is an injection into the circular flow of income.

The Government in return levies taxes on households and firms in order to pay for the goods and services. This is a leakage from the circular flow of income.

The government is able to spend on the factor market in return for the four factors of production which allows the government to make the public goods and services available.

The government also spends on the goods market in return for goods made by the …show more content…
The R22 million acts as an injection into the circular flow of income as the solar energy solutions company would need to hire more people to install solar panels, electricians, health and safety officers and builders to reinforce the roofs. Suppliers of the solar panels and batteries would also be able to benefit from the tender.

The employees of this tender will use 80% of their income to spend and the remaining 20% to save. Therefore the R22 million will become steady income for many people. This will allow the people working on the tender to spend some of their income and save some of it.

R17.6 Million would be used to spend on other sectors of the economy such as restaurant’s and vacations. There would be a saving of R4.4 million.

The R17.6 Million would now become someone else’s income and they too would use 80% of their salary on other sectors of the economy to spend and save the remaining 20%. They would spend R14 080 000 and save R3 520 000. This would carry on going until the money eventually runs