maam allen lesson 1

Basic macroeconomics

Focuses on national level

GDP

Focuses on domestic products

GNP

Focuses on national products

3Goals of macroeconomics

-Gdp

-Gnp

-Unemployment

Inflation/deflation

Principle #1: People Face Tradeoffs

• There is no such things as free lunch

• Another tradeaff society Focus is between efficiency and equity

• Efficiency

• - The property of society getting the most it can from its scarce resources

• Equity

• - the property of distributing economic property fairly among the members of society

Principle #2:

The cost of something is what you give up to get it

* Because people face trade-offs, making decisions require comparing The costs and benefits of alternative couter of actions. In many cases, however, the cost of same action is ir not as obvious as it might first appear.

Principle #3: Rational people think at the margin

• Marginal Benefit

• Marginal cost

• Marginal changes

marginal = additional

Principle #4: People respond to incentives

Because people make decisions by comparing costs and benefits, there behavior may change when the cost or benefits change. That is, people repond to incentives.

How people make decisions

Principle 1 to 4

How people interact

Principle 5 to 7

How economy as a whole works

Principle 8 to 10

Principle #5:

Interact Trade can make anyone betler off

Trade allows each peron to specialize in the activities he/she does best, whether it is farming, sewing, at home building.

By: trading other people can buy a greater varriety of goods and servicer at lower costs

principle #6

Market are usually a good way to organize economic activity

Central Planning - communist countries worked on The premises that central Planners in the government were in the best position to guide ecomic activity

Market Economy - the decisions of a central planner are replaced by the decisions of millions of firms and household

Central Planning

- communist countries worked on The premises that central Planners in the government were in the best position to guide ecomic activity

Market Economy

 - the decisions of a central planner are replaced by the decisions of millions of firms and household

Adam smith

Father of Economics

The Invisible Hand

As long as there is supply and demand, it reaches equilibrium that means The invisible hand is moving

Principle 7

Government can sometimes improve market outcomes

* Although markets are usually a good way to organize economic activity, this rule has some important exceptions.

there are two broad reasons for a goverment to inferrene in the economy: "to promote efficiency and to promote equity "

• Market failure < Market power

• Externality

Drinciple #8: A country standards of living depends on its ability to produce goods and services

• productivity- the amount of goods and service produced for each hour of a workers time.

• Lower investment today means lower productivity in the future

• productivity

• - the amount of goods and service produced for each hour of a workers time.

Principle #9. Prices rise when the government prints too much money

* inflation -an increare in the overall level of pricer in the economy

* What causes inflation?

inflation

-an increare in the overall level of pricer in the economy

Principle #10: society faces a short-run fradeoff b/w inflation and unemployment

* Philips Curve- inverse relationship between inflation and unemployment

If I goes up UE goes down

If I goes down UE goes up

Philips Curve

- inverse relationship between inflation and unemployment