Macro 3

• Supply: When prices are higher, producers are willing to make and sell more. When prices are lower, they cut back.

• Demand: When prices are lower, consumers want more. When prices are higher, they want less.

• Equilibrium: The "magic spot" where the amount supplied equals the amount demanded. That's where prices settle in a balanced market.

• Equilibrium Point: Where the supply and demand curves intersect. At this price:

  • The amount producers are willing to sell matches what consumers are willing to buy.

  • There's no surplus (extra goods) or shortage (not enough goods).

Causes of Demand Shifts

1. Income Changes: When people's incomes rise, they often demand more of certain goods (normal goods). For example, luxury car sales might increase. Conversely, if incomes fall, demand for cheaper alte

• Substitutes: If a competitor lowers prices (e.g., Pepsi vs. Coke), demand for the other product decreases.

• Complements: A drop in gas prices might increase demand for cars.

Causes of Supply Shifts 

• Input Costs: If production costs rise (like raw materials or wages), supply decreases since it’s less profitable for producers

• Government polociec 

  • Taxes: Higher taxes can shrink supply

• Production possibility curve (PPC)- teaches us about scarcity and the need to make choices. It reminds us that economic growth depends on improving resources, technology, and efficiency.

• Principle of comparative advantage- explains how individuals, businesses, or countries can benefit from specializing in the production of goods or services in which they are relatively more efficient. 

• How Depreciation affects trade 

  • Inflation: If a country has higher inflation than its trading partners, its currency may lose value.

  • Interest Rates: Lower interest rates compared to other countries can reduce foreign investment, weakening the currency.

  • Trade Deficits: When a country imports more than it exports, there’s higher demand for foreign currencies, which can devalue the domestic currency.

  • Economic or Political Instability: Uncertainty can drive investors to more stable currencies.

• Depreciation-  occurs when the value of a country's currency decreases relative to other currencies. 

• national deficit occurs when a government spends more money than it collects in revenue during a specific period, usually a fiscal year.

• national debt is the cumulative amount of money the government owes from running annual deficits over time.

• Federal Reserve- It consists of seven members, appointed by the President and confirmed by the Senate, serving staggered 14-year terms. Responsibilities include overseeing monetary policy, supervising member banks, and guiding the operations of the Fed.

• Monetary policy- used to stimulate the economy during periods of slow growth or recession, tools include lowering interest rates and increasing the money supply, which encourages borrowing and investment and boosts GDP. Controlled by the Federal Reserve 

• M1 and M2 as categories to measure and understand the money supply in an economy—essentially, the amount of money circulating and available for spending or saving.

  • M1- most liquid of money, like bills, coins, and checking accounts 

  • M2- includes everything in M1 but less liquid like savings accounts and time deposits 

• fiscal policy is  which is how governments manage their spending and taxation to influence the economy implemented by elected officials

  • Raised aggregate demand

  • Higher price levels

  • Raises gdp 

• Inflation occurs when the overall price levels of goods and services rise in an economy. Monetary policy will help

• A recession is a period of declining economic activity, typically marked by two consecutive quarters of negative GDP growth. Fiscal policy will help

• Keynesianism - that governments should play an active role in managing economic cycles, particularly during recessions.

• Monetarism- Controlling the money supply is the most effective way to manage the economy.