II Macroeconomics is the study of the economy as a whole; microeconomics is the study
of individual parts of the economy such as
businesses, households and prices. Macroeconomics looks at the forest; microeconomics looks at the trees.
II A circu
II Macroeconomic policy involves combinations of fiscal and monetary policies.
iii The inside lag is the amount of time it takes
policy makers to recognize the economic situation and take action. The outside or
impact lag is the amount of time i
People and nations trade to improve their
standard of living.
Because trade is the voluntary exchange of
goods and services, the decision to trade will
occur only if both parties to the exchange
expect to gain from it.
II Voluntary trade promotes economi
Throughout history, there have been four
bask types of money: commodity money,
representative money, fiat money and checkbook money.
Money has three main functions: a medium
of exchange, a standard of value (or unit of
account) and a store of va
R The Keynesian aggregate expenditure
is a simple model of the economy and shows
the multiplied effect that changes in government spending, taxes and investment can
have on the economy.
used to illustrate changes in real output and
Scarcity exists because we have limited
resources and unlimited wants. No society
has ever had enough resources to produce all
the goods and services its members wanted.
II Because of scarcity, all decisions involve
II Opportunity cost is the forg
Formulas to Know
Convert to real
Nominal minus inflation = real
All Index Years = 100
time (CPI, GDP