Macroeconomic Variables (Aggregate Variables). Macroeconomic is the study of behavior of economy as a whole macroeconomic variable or aggregate variables are interrelated and interdependent. These variables are categorized into two categories:-

(a) Goods market Macro-variable

These are all flow variables and keep on changing regularly. They are interrelated and interdependent.

(b)  Money Market Macro-variable

(viii) Balance of Payment.

Stock is a quantity measured at the specific point of time whereas flow is the quantity measured per unit of time.
1. Amount of water in a bucket is a stock where is amount of water going into the bucket from the tap is a flow variable.
2. Balance sheet of the firm will be a stock where is P&L account is a flow variable.
3. An individual wealth is a stock while income or expenditure is a flow.
4. No. of unemployed people in our economy is a stock whereas number of people losing and getting the job is a flow.

• Static Macro Economic Analysis:-
  

Static means state of rest or state of being motionless. A static economy means an economy with normal activities without any change in the size of economic activities National output or stock price of employment. Static economy doesn't mean and economy without activity or no one is doing anything at all. When an economy is studied under the static condition is called static analysis. Static micro model assumes that there is no need a change in the size of economy, total output Technology, price, employment, population, nature of business, taste and preference etc.

• Comparative Static Analysis
  

It is a comparative study of economic conditions of an economy at to static equilibrium position at two different points of Time. E.g. - Comparison of national income of 2008 to 2016.

• Dynamic analysis
  

It means that economy is in motion when macroeconomic phenomena is analyzed on the changing or dynamic conditions, it is called and analysis. A big noticeable change is saying and economic factors and forces keep changing.

• Income or National Income
  

National Income is an economy depends on the economy's  output or production which in turn depends on the factors of production and their employment. National income is distributed among different factors of production in the form of rent, wages and salaries internal payment for RAW material, power, profit etc. National income is the money value of all the final goods and services produced by a country during one year.

• Expenditure
  

It means the expenditure on all goods and services in an economy. Aggregate expenditure in an economy is equal to the aggregate demand.

Aggregate Demand = Aggregate Expenditure

It consists of:-

(i) Aggregate Consumption Expenditure

(ii) Aggregate Investment Expenditure

(iii) Government Expenditure

(iv) Export and Import Expenditure

In case of a closed economy, where there is no trade with other countries, the value of net exports will be zero and the aggregate demand will include consumption demand, investment even and government demand for goods and services. whereas in an Open Economy with trade links and with other countries aggregate demand will include consumption demand, investment demand, government demand and net export demand.
AD = C+I+G (Closed Economy)
AD = C+I+G+x (Open Economy)
where
C = Consumption Demand
I = Investment Demand
G = Government Demand 

Consumption Demand

Investment Demand

Government Demand

People demand money for three purposes

1. Transaction Motive

People like to hold money to meet out there routine expenses or for the transaction motive. Demand for money for transaction motive is determined largely by the level of income. Higher the income greater will be the demand.

2. Precautionary Motive

It consists of demand of money to fulfill unexpected requirements or to meet contingent expenses also depends upon the level of income.

Here, the money is demanded to have some monetary gains. People Hold money, so that they can invest the same for purchasing bonds and equities.

Money is determined by the rate of interest. At higher rate of interest (in the banks) there will be less speculative demand.

1. Production

Means transformation of certain inputs into some output and creation of utility, production give rise to Income at micro level, aggregate production will be equal to aggregate income (National Income).

2. Consumption

Using the produced goods and services for the satisfaction of human wants is known as consumption.

3. Capital formation

It is the surplus of production over consumption used for further production.

Interrelationship

Production, consumption and capital formation are three interrelated activities. Once the production takes place, an equal amount of income is generated, portion of this income is used in consumption and rest is savings, which in turn becomes investment. As a result, investment helps to raise the investment potential resulting in more production, higher consumption and larger investment.

  

Household sector

Biggest sector in an economy.
Owner of all the factor of production like, labour, capital and entrepreneur.
Their total income is a return to these factors of production in form of rent, wages, salary and profit etc.
Household are the consumer of all consumer goods and services.
The Income (DI) of household is used either for consumption or for savings.
Savings will flow to the producing sector in the form of investment.

Producing or business sector

Producing Sector is not the owner of resources.
They hire or buy the factors like land, labour, capital raw material etc. from the household sector.
Producing sector use these factor of production in the production process and sell goods and services back to the households.

Producing Sector do not save.  Hence there is no corporate savings.

Government sector

Two sector Model

Three sector Model