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1-18-07 - o Firms—maximizes profit o...

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Macro-Economics Lecture 1/18/07 Whenever price is lower than the equilibrium price, there will always be a shortage in the market. Income is a demand shifter, GDP is a measure of income When cost of input increases, supply shifts to the left Self-fulfilling prophecy—if everyone thinks prices will go up, it will actually go up. Circular Flow Model o Households—maximizes utility—labor, land, capital
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Unformatted text preview: o Firms—maximizes profit o Government—maximize votes o International—maximize profit o When income = spending, economy is in equilibrium o When income < spending, economy is expanding o When income > spending, economy is contracting For every economy, there are two sides: 1. Physical Activities – Real Economy 2. Nominal Economy Tax is a leakage from the economy, it contracts the economy....
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