Macroeconomic model
Also called: Model · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 4 "Determination of Income and Employment"
Meaning
A macroeconomic model is a deliberately simplified story of an imaginary economy. It keeps the essential features of how the economy works and leaves out the details. It is useful precisely because it is simple, so it shows clearly how the main parts affect each other. The skill lies in choosing which model fits which real situation.
Example
The two-sector circular flow model assumes only households and firms, with no saving, government or foreign trade. It is unrealistic, but it clearly shows why total income equals total spending. It also shows why output measured at three different points gives the same figure.