Macro Chapter 2 - Thinking Like an Economist

circular flow diagram

a visual model of the economy that shows how dollars flow through markets among households and firms

production possibilities frontier

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

microeconomics

the study of how households and firms make decisions and how they interact in markets

macroeconomics

the study of economy wide phenomena, including inflation, unemployment, and economic growth

Positive Statements

Claims that attempt to describe the world as it is

Normative statements

claims that prescribe how the world should be