Macro Section 1

Front 1

microeconomics

Back 1

- examines the behavior of INDIVIDUAL consumers, workers, firms, and industries

Front 2

macroeconomics

Back 2

- examines the behavior of the OVERALL US economy
ex) stock market, inflation, unemployment

Front 3

employment act of 1946

Back 3

- it is the governments responsibility to promote maximum EMPLOYMENT, PRODUCTION, PURCHASING POWER

Front 4

major macroeconomic policy goals

Back 4

promote maximum:
- Production (economic growth)
- Purchasing power (stable prices)
- Employment
- Smooth out business cycle fluctuations

Front 5

economic policy: Fiscal policy- determined by? change?

Back 5

(government actions to influence the economy)
- determined by: congress and the president
- change tax laws
- change government spending

Front 6

economic policy: monetary policy- conducted by? influence?

Back 6

- (government actions to influence the economy)
- conducted by: the Federal Reserve System
- influence the money supply
- influence interest rates

Front 7

descriptive statements

Back 7

- economic FACTS or DATA

Front 8

positive statements

Back 8

- statements or THEORIES about how the economy works
ex) lower the price of automobiles, people will buy more of them

Front 9

normative statements

Back 9

- value JUDGEMENTS about what is good or bad
- policy statements about what courses of action should or ought to be taken
ex) we should raise the minimum wage

Front 10

common error in economic reasoning: Fallacy of false cause- "Post hoc, ergo propter hoc"

Back 10

- "After this, therefore because of this"
- ex) Reagan lowered taxes during the 1980s and the economy grew rapidly. AKA decreasing taxes caused economic growth
- ex) Clinton raised taxes during the 1990s and the economy grew rapidly. AKA raising taxes caused economic growth
-* that one thing that happened is not the sole cause, other factors influence economic growth

Front 11

common errors in economic reasoning: Fallacy of composition, what is the paradox of thrift?

Back 11

- what holds for one person does not necessarily hold for everybody
- the paradox of thrift- what is good for one is not necessarily good for everyone
- ex) saving- if 1 person cuts their spending by 30%, they save. but if everyone cuts their spending by 30% the economy is hurt

Front 12

common errors in economic reasoning: Ceteris Paribus Fallacy (the other things being equal fallacy)

Back 12

- theory: an increase in interest rates will lead to a decrease in borrowing
- theory: if gasoline prices increased, people would buy smaller cars
- but when situations change factors dont remain equal
ex) Penguins tickets are cheap because they suck, but no one buys them. But when they improve ticket prices go up, and people buy them. BUT things arent equal- they have new better players

Front 13

economic decision makers: households- goal? act?

Back 13

- goal: maximize their UTILITY
-- utility= level of satisfaction, sense of well-being, overall happiness
- Act- in their own RATIONAL SELF INTEREST so they choose actions that benefit them most
-- maximize benefits (for a given cost), minimize cost (for a given benefit)

Front 14

economic decision makers: firms- goal? types of business firms?

Back 14

- goal- MAXIMIZE PROFITS
- 3 types: sole proprietors (ex. bartenders), partnerships (2 people), corporations (big company)

Front 15

economic decision makers: government- why we need government interference?

Back 15

- protect private property (police)
- enforce contracts (judicial system, courts of law)
- promote competition
- regulate natural monopolies (electricity, water)
- provide PUBLIC GOODS (national defense)
- deal with EXTERNALITIES
- promote MACROECONOMIC GOALS
- provide for the disadvantaged and disabled

Front 16

externality

Back 16

- a cost of benefit that AFFECTS PEOPLE NOT INVOLVED in an activity or transaction and is therefore IGNORED BY THE INDIVIDUALS INVOLVED IN THE ACTIVITY or market transaction

Front 17

negative externalities. ex? what does the gov do?

Back 17

- impose costs on third parties
- ex) noise, polluted air, litter, auto emissions, polluted water, unkempt yards
- government used laws, regulations, fines, and taxes to limit

Front 18

positive externalities. ex? what does the gov do?

Back 18

- confer benefits on third parties
- ex) good schools, educated citizens, medical improvements
- governments promote through subsidies and tax reductions. ex) social security

Front 19

major macroeconomic goals: employment act of 1946

Back 19

- full employment
- price stability
- economic growth
- provide for the disadvantaged
- redistribute income via taxes and transfer payments