Introduction to Macroeconomics

A hypothetical good that represents the overall production and price level of an economy, simplifying analysis by aggregating all goods and services into one.

The total output of goods and services produced in an economy over a specific period, often measured as Gross Domestic Product (GDP).

The general level of prices for goods and services in an economy. It reflects the average change in prices for a basket of goods.

The situation where there is a general increase in prices of goods and services in an economy over time.

A severe economic downturn characterized by high unemployment, low production, and a decline in economic activity.

The study of the economy as a whole, focusing on aggregate variables like national income, unemployment, inflation, and economic growth.

The process of simplifying a complex system by focusing on the most important aspects. In macroeconomics, we often use a representative good to model the behavior of the entire economy.

Different sectors of the economy, such as agriculture, manufacturing, and services, that have distinct characteristics and respond differently to economic policies.

In microeconomics, these are individuals or institutions that make economic decisions. Examples include consumers, producers, governments, corporations, and banks.

A situation where the quantity demanded of a good or service equals the quantity supplied.

A situation where the prices and quantities of all goods and services in an economy adjust to reach a state of balance, where supply and demand are in equilibrium in all markets.

The idea that individuals acting in their own self-interest can lead to an efficient allocation of resources in the economy.

The ability of consumers to choose their desired combination of goods and services given their income and preferences.

The process by which firms try to maximize profits by producing goods and services at the lowest possible cost and selling at the highest possible price.

The study of an economy's overall performance, focusing on factors like national income, unemployment, inflation, and economic growth.

Individual economic agents making decisions based on self-interest, like a butcher selling meat to make a profit.

When societal goals like employment or education require government intervention to modify the outcomes of individual economic decisions.

The father of modern economics, known for his work "The Wealth of Nations", which argued for free markets.

Policies like taxes, government spending, and money supply adjustments used to influence the economy.

The study of how individuals make economic decisions in a market setting.

Economic school of thought that emphasized the importance of natural laws and free markets in guiding economic activity.

A situation where the overall level of prices for goods and services in an economy increases over time.

Analyzing how the relationships between different parts of the economy, like agriculture and industry, help us understand the overall economic picture.

Focusing on representative goods can miss the specific characteristics of individual goods and their production methods.

Different goods like agricultural products, industrial goods, and services have unique production processes and prices.

Macroeconomics explores how the output, prices, and employment levels of various goods are decided in the economy.

The study of individual economic actors, such as households and businesses, and their motives.

Macroeconomics examines the overall performance of the economy, considering factors like inflation, unemployment, and economic growth.

Understanding how individual economic actors’ decisions affect the overall economy.

Analyzing the relationships between economic sectors and understanding the factors that drive their interactions and impact on the overall economy.

An economic system where production takes place for profit and goods are sold in a market, with private ownership of resources and wage labor.

Resources like land, factories, and tools used in the production of goods and services.

Workers who sell their labor power for a wage.

The price paid for labor services.

The person who organizes production, hires labor, and takes risks in a capitalist economy.

The value of goods and services produced minus the cost of inputs.

The units of production in a capitalist economy, typically owned and run by entrepreneurs.

The risk that an entrepreneur may not sell enough goods to recover the cost of production and make a profit.

Capitalist enterprises are businesses owned by individuals or groups who invest money (capital) and make decisions about how to run the business.

Entrepreneurs are people who start and run a business, taking risks and making key decisions.

Land, labor, and capital are the basic resources needed to produce goods and services. Land includes natural resources, labor is the work of people, and capital represents financial resources or tools.

Revenue is the total money a business earns from selling its products or services.

Wages, rent, interest, and profit are payments made to the factors of production for their contributions: wages to workers, rent to land owners, interest to capital owners, and profit to entrepreneurs.

Investment expenditure refers to spending by businesses on new capital goods, such as machinery or factories, to increase future production.

Profit is the remaining revenue after all expenses are paid, including wages, rent, and interest.