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Macro_Notes1 - Deskins Lecture Notes 1 Principles of...

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Deskins, Lecture Notes 1 Principles of Macroeconomics General Introduction Remember the big picture: -This is a science course; science is the branch of human inquiry that is characterized by the systematic process of observation, hypothesis formation, testing, and revision… -We are specifically a social science ; that is, we apply the scientific method to social phenomena. Economics is the branch of scientific inquiry that attempts to understand how human systems make decisions in the face of scarcity. Or, in other words, how does society allocate and distribute scarce resources? Examples of Economic Questions : Micro Questions - Relating to social phenomena at the individual level: -What will happen in the labor market if the minimum wage is increased? -How much should I study for this class? -Why did crime fall in the 1990s? -How should government regulate the electric company? -How does the tax system affect housing decisions? -How does the tax system affect small business activity? -How should state spending on education be reformed? -How should water be regulated in Nebraska? Macro Questions - Relating to aggregate economic behavior: -Why is the economy growing at the present rate? -Why are so many people unemployed? -Why are prices rising at the present rate? -Why are some countries so rich while others are so poor? -How can government affect economic growth in the long-run? -Can government effectively stabilize economic activity in the short-run? -How should monetary policy be conducted to best promote economic prosperity?
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Deskins, Lecture Notes 1 2 What do we do in this course? We use the economic method to better understand questions of resource allocation at the macro level. This consists of observing macroeconomic behavior (in outlets such as The Wall Street Journal ), and then building economic models to help us better understand such behavior. Economic models are graphical and/or mathematical representations of social phenomena that we observe. They are much simpler than the real world, and are thus imperfect, but they help us make sense out of much of what we observe in a very workable framework. Examples of the most common economic models are the model of supply and demand and the production possibilities model. What is the purpose of this course? The ultimate purpose of economic science is to first develop an understanding of human systems of resource allocation, but then, to use this understanding to design new methods that allow us to make better use of the finite resources that we have. Economics is about, for example: -helping to alleviate poverty. -understanding how to best preserve our physical environment while making use of its resources. -designing better government spending programs and tax systems.
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Macro_Notes1 - Deskins Lecture Notes 1 Principles of...

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