Macroeconomics Chapter 1

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10 Principals of Economics
1.People face trade off
2.The cost of something is what you give up to get it
3.Rational people think at the margin
4.People respond to incentives
5.Trade can make everyone better off
6.Markets are usually a good way to organize economic activity
7.Governments can sometimes improve market outcomes
8.A country’s standard of living depends on its ability to produce goods and services
9.Prices rise when the government prints too much money
10.Society faces a short-run tradeoff between Inflation and unemployment
Goal of Macroeconomics (managing the economy – policy) – jobs and low prices
Full Employment
Stability
Economic Growth
Phillips Curve- what does it claim and does it work?
the relationship between unemployment rate and inflation rate. Works sometimes
Fiscal Policy (Government spending)
the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
Monetary Policy (changes in the Money Supply)
An increase in the quantity of money decreases interest rates
Law of Demand
other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.
What happens to Quantity Demanded with a change in price?
A change in quantity demanded is caused by a change in price.(Move on the demand curve from point to point)
What causes Demand shifts?
Income
Consumer Preference
Number of Buyers
Price of Related Goods
Expectation of Future
Law of Supply
As a price increases the quantity of the good provided increases, as the price of a good decreases, the number provided decreases.
What happens to quantity supplied as price changes?
A movement along the supply curve. A change in quantity supplied is caused by a change in price.
What causes Supply shifts?
Production cost
Technology
Number of Sellers
Expectations of the future
Equilibrium
quantity supplied equals quantity demanded
Surplus
A situation in which quantity supplied is greater than quantity demanded
Shortages
The result of quantities demanded exceeding quantities supplied
Substitute goods
two goods for which an increase in the price of one leads to an increase in the demand for the other
Complement goods
two good for which an increase in the price for one leads to a decrease in the demand for the other
Positive analysis
Answers the question “What is?” or “What will be?”
Normative analysis
Analysis concerned with what ought to be
Opportunity Cost
is what you sacrifice to get something (your next best alternative) – it may not have a money cost
Microeconomics
Study of a single factor of an economy – such as individuals, households, businesses, & industries – rather than an economy as a whole.
Macroeconomics
Concentrates on the operation of a nation’s economy as a whole.
Principle of Voluntary Exchange
A voluntary exchange between two people makes both people better off.
COMPARATIVE ADVANTAGE
THE ABILITY OF ONE PERSON OR NATION TO PRODUCE A GOOD AT A LOWER OPPORTUNITY COST THAN
Import
A GOOD OR SERVICE PRODUCED IN A FOREIGN COUNTRY AND PURCHASED BY RESIDENTS OF THE HOME COUNTY
Market Economy
Economic decisions are made by individuals or the open market.
Scarcity
the limited nature of resources
Economics
Study of how society manages its scarce resources
Market
Any time a buyer and seller meet
Competive market
a market in which there are many buyers and many sellers so that each has a neglibible impact on the market pric
Normal goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
Inferior goods
Goods for which demand tends to fall when income rises.
Categories: Macroeconomics