Microeconomics: Understanding Individual Economic Units

Studies the behavior and decision-making of individual economic units, such as:
- Households (consumers)
- Firms (producers)
Examines the interactions among these units in markets, including:
- Price determination
- Resource allocation
Key concepts:
- Opportunity cost: the value of the next best alternative forgone
- Supply and demand: the relationship between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy
- Market equilibrium: the point at which the supply and demand curves intersect
- Consumer theory: the study of how households make decisions about what goods and services to consume
- Production theory: the study of how firms make decisions about what goods and services to produce

Refers to the actions of a central bank (e.g. Federal Reserve in the US) to control the money supply and interest rates to promote economic growth, stability, and low inflation
Tools used to implement monetary policy:
- Open market operations: buying or selling government securities to increase or decrease the money supply
- Reserve requirements: setting the minimum amount of reserves that banks must hold against deposits
- Discount rate: the interest rate at which banks borrow from the central bank
Goals of monetary policy:
- Price stability (low inflation)
- Maximum employment
- Moderate long-term interest rates

Refers to the use of government spending and taxation to influence the overall level of economic activity
Tools used to implement fiscal policy:
- Government spending: increasing or decreasing spending on goods and services to stimulate or slow down the economy
- Taxation: increasing or decreasing taxes to reduce or increase aggregate demand
Goals of fiscal policy:
- Stabilize the economy during times of recession or boom
- Reduce poverty and inequality
- Promote economic growth and development

Studies the behavior and performance of the economy as a whole, including:
- Economic growth and development
- Inflation and deflation
- Unemployment and employment
- International trade and finance
Key concepts:
- Gross Domestic Product (GDP): the total value of goods and services produced within a country's borders
- Aggregate demand: the total amount of spending in the economy
- Aggregate supply: the total amount of production in the economy
- Business cycle: the fluctuations in economic activity, including expansion and contraction
- Economic indicators: statistics that provide insight into the state of the economy, such as GDP, inflation rate, and unemployment rate

Studies individual economic units, including households and firms, and their interactions in markets
Examines price determination, resource allocation, and market equilibrium
Key concepts:
- Opportunity cost represents the value of the next best alternative forgone
- Supply and demand determine the quantity of a good or service that producers are willing to sell and consumers are willing to buy
- Market equilibrium occurs when supply and demand curves intersect
- Consumer theory focuses on household decision-making regarding goods and services to consume
- Production theory focuses on firm decision-making regarding goods and services to produce

Refers to central bank actions to control the money supply and interest rates to promote economic growth, stability, and low inflation
Tools used to implement monetary policy include:
- Open market operations to increase or decrease the money supply
- Reserve requirements to set minimum bank reserves
- Discount rate to set the interest rate for bank borrowing
Goals of monetary policy include:
- Price stability (low inflation)
- Maximum employment
- Moderate long-term interest rates

Refers to the use of government spending and taxation to influence economic activity
Tools used to implement fiscal policy include:
- Government spending to stimulate or slow down the economy
- Taxation to reduce or increase aggregate demand
Goals of fiscal policy include:
- Stabilizing the economy during recessions or booms
- Reducing poverty and inequality
- Promoting economic growth and development

Studies the economy as a whole, including economic growth, inflation, unemployment, and international trade
Key concepts:
- Gross Domestic Product (GDP) represents the total value of goods and services produced within a country's borders
- Aggregate demand represents the total amount of spending in the economy
- Aggregate supply represents the total amount of production in the economy
- Business cycle refers to fluctuations in economic activity, including expansion and contraction
- Economic indicators provide insights into the state of the economy, including GDP, inflation rate, and unemployment rate

Sustained increase in general price level of goods and services in an economy over time
Causes:
- Excessive aggregate demand in economy (demand-pull inflation)
- Increase in production costs (cost-push inflation)
- Excessive money supply in economy (monetary policy)
Effects:
- Reduces purchasing power of consumers
- Uncertainty for businesses and investors
- Negatively affects fixed-income earners and savers (inequality)
Measured by:
- Consumer Price Index (CPI)
- GDP Deflator
- Inflation Rate

Total value of final goods and services produced within a country's borders over a specific period
Calculated using:
- Expenditure approach (consumption, investment, government spending, net exports)
- Income approach (compensation to employees, operating surplus, mixed income)
- Value-added approach (sum of value added at each stage of production)
Importance:
- Measures economic growth and development
- Indicates standard of living
- Used for policy decisions and forecasting

Actions of central bank to control money supply and interest rates for economic growth, stability, and low inflation
Tools:
- Open market operations (buying/selling government securities)
- Reserve requirements (minimum reserve ratio for commercial banks)
- Interest rates (discount rate or other interest rates)
Objectives:
- Price stability (controlling inflation)
- Full employment (promoting job creation)
- Economic growth (encouraging sustainable growth)

Use of government spending and taxation to influence overall economic activity
Tools:
- Government spending (increasing/decreasing expenditure)
- Taxation (changing tax rates or introducing new taxes)
Objectives:
- Stabilization (reducing unemployment and inflation)
- Redistribution (reducing income inequality)
- Economic growth (encouraging investment and innovation)
Types:
- Expansionary fiscal policy (increasing government spending or reducing taxes)
- Contractionary fiscal policy (reducing government spending or increasing taxes)