2A. THE LEVEL OF OVERALL ECONOMIC ACTIVITY

The Circular Flow of income can be illustrated in a variety of ways; a water machine, a simulation, a diagram. What needs understanding is that it is the basic foundation of Macroeconomic modeling and like Phillips water machine it is changes to the circular flow and the economic consequences thereof that really illustrate the importance of the model;

circular_flow_model-2.pptx
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The circular flow of income model

circular_flow_of_income_lesson.pdf
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Big questions and big numbers
AMONG the many gadgets, instruments and artefacts in its care, London's Science Museum holds a peculiar contraption that most resembles the work of a deranged plumber. Yellow tubes connect together a number of tanks and cisterns, around which coloured water can be pumped.

How we got here
MAINSTREAM macroeconomics has a pretty poor reputation these days, both among the public at large and among economists in other fields. This is hardly surprising. There is little consensus on even the most basic questions in macro. Ask top academics why America's post-crisis recovery has been so slow and you will get many different conflicting answers.

The level of overall economic activity

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Bobby Kennedy on GDP: 'measures everything except that which is worthwhile'
UK GDP estimate figures are out today. See what Bobby Kennedy said about this data in 1968

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The business cycle

WHAT: THE BUSINESS CYCLE
HOW: RESEARCH THE DIFFERENT PHASES OF THE BUSINESS CYCLE AND BE ABLE TO EXPLAIN WHY THEY OCCOUR
WHY: THE BUSINESS CYCLE IS AN IMPORTANT MODEL FOR ECONOMISTS AS IT IS AN INDICATOR OF FUTURE ECONOMIC PERFORMANCE

Another economic downturn is just a matter of time
JUST SOUTH of Indiana's border with Michigan lies the city of Elkhart, with a population of just over 50,000. Apart from a small, shop-lined high street near where one river, the Elkhart, flows into another, the St Joseph, the city is mostly shapeless, tree-lined and suburban.

Economists still lack a proper understanding of business cycles
THE aftermath of the 2007-08 financial crisis ought to have been a moment of triumph for economics. Lessons learned from the 1930s prevented the collapse of global finance and trade, and resulted in a downturn far shorter and less severe than the Depression.

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Alternatives to gdp AS A MEASURE OF ECONOMIC WELL-BEING

WHAT: Distinguish between alternative measurements of well-being, such as BLI, and the HPI.
HOW: Research the USA and one other countries positions in each of the 4 rankings and explain the relative differences
WHY: To understand the subjective role each measure of economic-well being relies on to create global rankings and consider their use compared to GDP per capita alone.

ACTIVITY 1: WHERE DOES THE USA RANK Utilise Kognity or Oxford Textbooks to research alternative methods to measure economic wellbeing.

Go to the following world happiness report website and research the places of 5 countries including the USA,
OECD Better Life Index
World Happiness Index
Happy Planet Index

You can now create an economic well-being report for the USA, you might like to use Prezi-video to create a television style news broadcast:

Compare and contrast the USA's positions using the alternative measurements/composite indicators
Compare and contrast the different indicators that make up the composite for each of the alternative measurements
Compare and contrast the USA's position against other countries position and explain why there is a difference in the rankings.
Evaluate with strengths and weaknesses the different methods of measuring USA's economic well-being using different composite indicators.