Macro notes - 01/14/2008 Economics - the study of the...

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01/14/2008 Economics - the study of the allocating scarce resources over unlimited wants . Main topics in Macro GDP - Gross Domestic Product- value of all final goods and services produced in a country in a given time period. U.S. - 13.9 trillion in 2006. There are two ways to measure GDP- expenditure method (C+ I+ G+ Xn) C-consumption (68-70%) I- Investment- spending by businesses (16%) G- Government spending (20%) Xn- Net Exports [Exports- Imports] (-6%) Inflation - general increase in price level (use price indexes) Unemployment - percentage of the labor force that is unemployed. Labor force- the people willing and able to work. -Must be at least 16 years old. -Must be employed or actively seeking employment. 01/16/2008 CPI down by 1%- *Stay on top of macro indicators* CHAPTER 1 Opportunity Cost: what is foregone when a choice is made. The next best thing/ best alternative Rational Self Interest: Economics assumes decisions-makers pursue opportunities to increase their utility by comparing costs and benefits. Utility: the pleasure or satisfaction derived from consuming goods and services. Individuals allocate their time, energy, and money to maximize utility. Marginal Analysis: comparisons of marginal benefits and marginal costs, “marginal”= “additional” or “change in.” Economic Principle: A well-tested and widely accepted theory; a statement about economic behavior that enables forecasts of probable effects of certain actions. Combinations of economic principles are incorporated into Economic Models which are simplified representations of the economy or portions of the economy. Generalizations- economic principles are generalizations relating to economic behavior. They are tendencies of the typical situation, or in the aggregate. Ceteris paribus - the assumption that factors other than those being considered do not change. Models are often expressed in graphs
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Macro vs. Micro Positive vs. Normative Positive - this is the way it is Normative - should/ ought to be The Economizing Problem: 1. Society’s wants are unlimited and insatiable. 2. Economic resources, i.e., the means to produce goods and services, are limited and scarce. Society’s Economizing Problem Society’s economic resources- all natural, human, and manufactured resources used to produce goods and services- are scarce. Economic Resources: Also called “Factors of Production” or “inputs” 1. Land- all natural resources -Payment is “rent” 2. Capital- all manufactured aids used to produce goods and services; capital does not directly satisfy consumer wants. -Payment is “interest” “Investment”- the process of producing and purchasing capital goods 3. Labor- all physical and mental talents of individuals used in producing goods and services. -Payment is “wage”
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Macro notes - 01/14/2008 Economics - the study of the...

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