ECON100 Chapter 12 - Exam 2

Macroeconomics

Focuses on the economy as a while

Microeconomics

Examines the actions of all individuals and firms of the economics

Paradox of thrift

When people are worried about economic hard times, they prepare by cutting their spending. This reduction in spending depresses the economy, and businesses react by laying off workers. As a result, people end up worse off than if they hadn’t cut their spending.

Pre 1930 economics

Self-regulating, problems such as unemployment would be corrected through the invisible hand and the government interventions would probably make things worse. 

Post-1930 Keynesian economics

A depressed economy is the result of inadequate spending, government intervention can help a depressed economy through monetary and fiscal economy.

Monetary policy

Uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending

Fiscal policy

the use of government spending and taxation to influence the economy, aiming to promote growth, control inflation, and stabilize the business cycle

Recessions

Periods of economic downturn when output and employment are failing

Expansions

Periods of economic upturn when output and employment are rising

Business cycle

The short-run alternation between recessions and expansions 

Business cycle peak

Business cycle trough

Recessions cause

Many people to lose their jobs and make it hard to find new one, reduce the standard of living, increase poverty, cut corporate profits, bankrupt small businesses

John Keyes and Milton Friedman policy