ECON 252 1 - Ten Principles

Government could organize economic acmvity to promote

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Unformatted text preview: ket economy Enforce property rights Property rights Ability of an individual to own and exercise control over scarce resources 13 How People Interact Principle 7: Governments can someMmes improve market outcomes Government intervenMon Change allocaMon of resources To promote efficiency Avoid market failure To promote equality Avoid dispariMes in economic wellbeing 14 How People Interact Market failure SituaMon in which the market on its own fails to produce an efficient allocaMon of resources Causes for market failure Externality Impact of one person s acMons on the well-being of a bystander Market power Ability of a single person (or small group) to unduly influence market prices 15 How the Economy as a Whole Works Principle 8: A country s standard of living depends on its ability to produce goods and services Large differences in living standards Among countries Over Mme ExplanaMon: differences in producMvity 16 How the Economy as a Whole Works ProducMvity QuanMty of goods & services produced from each unit of labor input Higher producMvity Higher standard of living Growth rate of naMon s producMvity Determines growth rate of its average income 17 How the Economy as a Whole Works Principle 9: Prices rise when the government prints too much money InflaMon An increase in the overall level of prices in the economy Causes for large / persistent inflaMon Growth in quanMty of money Value of money falls 18 100 trillion Zimbabwe Bank notes, a collector's delight (Picture: NDTV) At the height of Zimbabwe's economic meltdown in 2008 when Zimbabwe's world record inflation was running into the billions in percent annually and prices were climbing each hour, the 100 trillion bill scarcely bought a cart of groceries. (Source: NDTV) 19 How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off between inflaMon and unemployment Short-run effects of monetary injecMons: SMmulates - overall level of spending Higher demand for goods and services Firms raise prices; hire more workers; produce more goods and services Lower unemployment Short-run tradeoff between inflaMon and unemployment 20 How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off between inflaMon and unemployment Short-run trade-off between unemployment and inflaMon Key role analysis of business cycle Business cycle FluctuaMons in economic acMvity Employment ProducMon 21...
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This note was uploaded on 05/02/2012 for the course ECON 252 taught by Professor Robertholand during the Spring '08 term at Purdue.

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