Introduction to Macroeconomics

Introduction to Macroeconomics

• Economics studies how people and societies use scarce resources across various alternatives for present and future consumption.
• People and societies are economic agents.
• Resources or factors of production include natural resources, labor, capital, and entrepreneurship.
• Scarcity is the fundamental economic problem.
• Consumption occurs in the present and the future.
• Macroeconomics studies the economy as a whole, focusing on the national and global economy.
• Microeconomics studies the behavior of individual elements within the economy, such as the decisions of individuals and firms and their interactions in markets.
• Basic microeconomic questions are "What to produce?", "How to produce?", and "For whom to produce?".
• Basic macroeconomic questions are "What determines the standard of living?", "What determines the cost of living?", and "Why does the economy fluctuate?".
• The standard of living is the average level of consumption enjoyed by people, which is the average income per person.
• The cost of living is the amount of money needed for a typical family to purchase goods and services. Inflation and deflation affect it.
• Fluctuations in the economy follow an economic cycle of expansion, recession, depression, and recovery.
• During an expansion, national production increases, and unemployment decreases.
• During a recession, the national production level decreases, and unemployment increases.
• A depression is a prolonged recession, often with numerous business bankruptcies, but does not always follow a recession.
• Recovery follows a recession or depression; production levels begin to rise, and unemployment starts to fall.
• Countries and their leaders decide how to use their scarce resources based on the existing economic system.
• An economic system refers to how production resources are allocated in a country; examples include capitalism, socialism, and communism.
• Capitalism features private ownership of production resources, where resource owners gain profits or capital.
• Socialism involves community ownership of most or all production resources, managed by the government for the benefit of all, which means there is public ownership of production resources.
• Communism features public ownership of production resources, with the government making decisions through extensive state planning, characterizing an authoritarian system.
• Errors and obstacles in economic analysis can arise.
• Ceteris Paribus means "all other things remain constant".
• The fallacy of composition is the false claim that what is good for one part is good for the whole.
• The "post-hoc" fallacy assumes that if one event follows another, the first caused the second.
• Subjectivity can influence economic analysis.
• Positive statements describe facts and data, explaining what is.
• Normative statements describe what should be and cannot be tested; they are based on agreement or disagreement.
• Chapter 1 appendix describes three types of diagrams.
• Explains the positive and negative relationships between two variables.