Econ_201_Module_1_Macroeconomics[1]

Econ_201_Module_1_Macroeconomics[1] - ECONOMICS II(ECON 201...

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ECONOMICS II (ECON 201) BASIC MACROECONOMIC ISSUES, BUSINESS CYCLE AND CIRCULAR FLOW OF INCOME MODULE 1 3/25/16 1 P R E PA R E D BY : M S . FA R H A Z E B A I B RA H I M
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DEFINITION OF ECONOMICS Economics is the study of how society manages its scarce resources. Economics is the social science that studies the choices that individual, business, government and entire societies make as they cope with scarcity. The field of economics is divided into two broad subfields; Microeconomics Macroeconomics 3/25/16 2 P R E PA R E D BY : M S . FA R H A Z E B A I B RA H I M
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MICROECONOMICS Microeconomics is the study of the choices that individuals and business make, the way these choices interact and the influence that governments exert on them. Some examples of microeconomic questions are: Why are more people buying Toyotas and fewer people buying minivans? How will a decline in air fare affect the producers of airplane? How would a tax on e-commerce affect the growth of the Internet? What is the effect of rent control on housing in New York City? 3/25/16 3 P R E PA R E D BY : M S . FA R H A Z E B A I B RA H I M
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MACROECONOMICS Macroeconomics is the study of the effects on the national economy and the global economy of the choices that individuals, business and governments make. Some examples of macroeconomic questions are: Why did production and jobs shrink in 2001? Why has Japan been in a long period of economic stagnation? Can the government bring prosperity by cutting interest rates? Will a tax cut increase the number of jobs and total production? 3/25/16 4 P R E PA R E D BY : M S . FA R H A Z E B A I B RA H I M
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Microeconomics and macroeconomics are intertwined. Because changes in the overall economy arise from the decisions of millions of individuals. It is impossible to understand macroeconomic developments without considering the associated microeconomic decisions. For example: A macroeconomist might study the effect of a federal income tax cut on the overall production of goods and services. But to analyze this issue, he or she must consider how the tax cut affects the decisions of households about how much to spend on goods and services. 3/25/16 5 P R E PA R E D BY : M S . FA R H A Z E B A I B RA H I M
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NATIONAL INCOME (NI) The income earned by a country's people, including labor and capital investment (money paid to purchase real estate, furniture and manufacturing equipment). Per Capita income is the income per person in a population. It is often used to measure a country's standard of living. Per Capita income = NI No. of population Disposable Personal income is the income that households and non-corporate business have left after satisfying all their obligations to the government. It equals personal income minus personal tax and certain nontax payments such as traffic tickets.
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