notes for econ - Macro econ will have a top down approach...

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Macro econ will have a top down approach looking at: output, employment, & inflation. The U.S. produces about $13 trillion in output every year We have about 148,000,000 jobs 08/23 Introduction (referencing ch 1) -Economics: study of the allocation of scarce resources among competing ends Scarcity Resources -Land & natural -Labor human capital -(physical) capital Scarcity Requires rationing (allocation) -markets (US) there are several different types, there is also such thing as positive (education) and failing markets (pollution, has negative externalities and spillover costs) Or planning (N. Korea) Or combinations (China) Economic Growth: -Rule of Law -Private property rights -individual freedom -Macroeconomics/microeconomics -key concepts -opportunity costs: value of the next best alternative explicit cost + implicit cost -positive/normative: normative is the value judgment Positive analysis is tested against the facts Ex: rent control or minimum wage -specialization & exchange -comparative advantage -invisible hand -creative destruction: Innovation -Macroeconomics: top down analysis output, employment, inflation policy (interest rates . . . to help control inflation) -Microeconomics: individual markets 08/28 Key principles (ref chpt 1) Economic modules (ref chpt 2) I. Production possibilities -scarcity -trade-offs -opportunity costs -economic growth II. Flow of economic activity -sectors -markets 10 Key principles -Decision making 1. Trade offs 2. opportunity costs 3. marginal analysis 4. incentives
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-Interactions 5. trade improves living standards 6. markets 7. policy can sometimes improve outcomes -macroeconomics 8.living standards are determined by the production of goods and services 9. excessive money growth creates inflation 10. short run trade off between inflation & unemployment Ex: oil is something that affects us all in various degrees, in the past from about 1973 – 1979 there was a huge inflation in the price of oil from about $6/barrel to $35. It then dropped to about $12 in the 80’s, $18 in late 90’s and $71 in 2007. Customers have sought ways to reduce use of oil, find alternatives, it helps to have incentives. Marginal analysis maximize net Benefit (NB) Total Benefit – total cost = NB 1. M cost = maximal benefit (MB) 2. MB/$A = MB/$B = MB/$N Chp2 economic models Production possibilities Frontier (curve) PPF & PPC A. Inside the frontier – unemployed resources (labor/capital) B. On the frontier – full employment & given state of technology Law of increasing (Opportunity) cost: in order to attain more of 1 good, progressively more of another good must be sacrificed. 08/30 Economic models (ref chpt 2) I. Production possibilities -summary II. Circular flow of economic activity -sectors -consumers -business firms -government -foreign trade -markets -goods (products) market -factor (labor) market -financial markets Next: chpt 3 trade Production possibilities summary Financial markets bring together: borrowers, savers, lenders, investors foreign exchange bond/debt market stock/equity market Foreign trade -merchandise trade -service -foreign direct investment
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