1.1 + 1.2 The economy as a whole

macroeconomics

study of the economy as a whole

what matters for living standards

the real wage

real wage

how much you can buy w/ your earnings
*if wage rises by 2% but prices rise by 3%, you’re poorer than before

labor market

firms hire workers

product market

selling of G+S happens here, firms also buy goods and services from other firms

main actors in the economy

firms, gov, individuals

firms

most of production and distribution of G&S is done by firms

individuals

work for gov and firms, do household work

governments

use taxes paid by owners of firms and household to employ people and purchase G&S needed, implement laws and policies that regulate how all actors interact

supply side

concerned w/ all activities required to supply goods and services available for purchase- illustrated by flows of labor from households to firms and of G&S from firms to households in the diagram

what does understanding the supply side help us do?

helps us understand why people earn what they do and how many people have a job, relative to # of ppl who want to be working

demand side

focuses on overall expenditure on all G&S produced - economy’s output
**3 key sources of demand = firms, households, and government