Economic Principles: Chapter 2

two decision makers

firms, households

PPF

production possibilities frontier

PPF: production possibility frontier

graph shows various combinations of outputs 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: descriptive

attempt to describe the world as it is, and to confirm or refute with evidence

normative statements: prescriptive

attempt to prescribe how the world should be

council of economic advisors

advise the president, writes annual economic report of the president

office of management and budget

helps formulate spending plans and regulatory policies

Department of the Treasury

design tax policy

Department of Labor

Analyzes data on workers and those looking for work, formulates labor-market policies

Economists at the Department of Justice

Enforce the nations antitrust laws

Congressional Budget office

helps the congress

The Federal Reserve

sets monetary policy

Economists conflicting advice

difference in scientific judgements and values

economists and tariffs

they believe it is a poor way to raise general economic well-being

economists roles

1. scientists, try to explain the world

2. policy advisors, try to improve it

circular-flow diagram

visual model of economy, shows how dollars flow through markets around households and firms