Principles of Macroeconomics — Chapter 1: Welcome to Economics

Question-and-answer style flashcards covering key concepts from Chapter 1: What is Economics, scarcity, micro vs. macro, theories and models, circular flow, economic systems, globalization, and related terms.

What is Economics and why is it important?

The study of how humans make decisions in the face of scarcity, across individuals, families, businesses, and society.

What does scarcity mean in economic terms?

A condition in which human wants exceed the resources available.

What data resource includes nearly 400,000 domestic and international economic and social variables used in this course?

The FRED database.

How has Economics been affected by the Social Media Age?

Economics is influenced by how information travels through society; platforms like Twitter, Facebook, and Instagram shape information flow and economic outcomes.

What real-world example is used to illustrate scarcity in the notes?

Homelessness, which reminds us that resources are scarce.

Who introduced the idea of division of labor and in what work?

Adam Smith in The Wealth of Nations (1776).

What is the division of labor?

Dividing tasks among workers to produce a good or service.

What is specialization in production?

Focusing on particular tasks for which workers or firms are well-suited within the production process.

What are economies of scale?

As production increases, the average cost per unit declines.

Which economists were awarded the Nobel Prize for experimental poverty research mentioned in the notes?

Esther Duflo, Abhijit Banerjee, and Michael Kremer.

What is microeconomics focused on?

The actions of individual agents within the economy—households, workers, and businesses.

What is macroeconomics focused on?

Broad issues such as growth, unemployment, inflation, and trade balance.

What is monetary policy?

Policy involving altering interest rates, the availability of credit, and the extent of borrowing, determined by a central bank.

What is fiscal policy?

Economic policies involving government spending and taxes, determined by the legislative body.

What did Keynes believe economics teaches you?

How to think, not what to think.

What is a theory in economics?

A simplified representation of how two or more variables interact with each other.

What is a model in economics?

A tool used to test theories; economists often use model and theory interchangeably in this course.

What does the Circular Flow Diagram illustrate?

Interactions between households and firms in the goods/services market and the labor market, including flows of goods, services, and wages.

What are the three basic ways economies can be organized?

Traditional economy, Command economy, Market economy.

What characterizes a traditional economy?

An agricultural, oldest system where occupations are family-based, production tends to equal consumption, with little economic progress.

What characterizes a command economy?

Economic decisions and resources are owned/controlled by the government, which sets production, prices, methods, and wages.

What characterizes a market economy?

Decentralized decisions, private ownership, and production based on demand; driven by the market and private enterprise.

What describes most real-world economies?

Mixed economies that combine elements of command, traditional, and market systems.

Where does the U.S. economy sit on the economic-system spectrum?

Market-oriented, with some government involvement and regulation.

What is regulation in economics?

Rules that define the operating rules of the economy; no market is absolutely free, and heavy regulation can lead to underground markets.

What is globalization?

The trend of buying and selling across national borders.

What are exports and imports?

Exports are goods and services produced domestically and sold abroad; imports are goods and services produced abroad and sold domestically.

What does GDP stand for and what does it measure?

Gross Domestic Product; it measures the size of total production in an economy.

What is the underground economy?

Markets where buyers and sellers transact without the government’s approval.