Macroeconomics

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What role do economists play?

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-work as scientists to analyze the world
-develop policies by combining positive analyses and normative judgements

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Positive statements

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attempt to explain the world as it is
-descriptive

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normative statements

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attempt to suggest how the world should be
-subjective

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GDP

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Market price of all the "final" goods and services produced in a country within a year

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Consumption

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spending by households and firms on durable and non durable goods and services

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Investment

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spending by firms and households on new commercial construction, residential construction, new machinery, software, bought by firms, result in change in inventories

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Government spending

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government pays employees to build infrastructure, defense, education

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GDP DEFLATOR EQUATION

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GDP DEFLATOR=(nominal GDP/ real GDP )*100

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Nominal interest rate

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at what rate your money grows every year

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Real interest rate

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at what rate your purchasing power of your money is growing every year

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scarcity

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the limited nature of society's resources

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efficiency

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the property of society getting the most it can from its scarce resources

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equity

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the property of distributing economic prosperity fairly among the members of society

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opportunity cost

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whatever must be given up to obtain an item, not just monetarily

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rational people

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people who sytematically and purposefully do the best they can to achieve their objectives

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marginal changes

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small incremental adjustments to a plan of action

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incentive

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something that induces a person to act

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market economy

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an economy that allocates resources through the decentralized decisions of many firms and housefolds as they interact in markets for goods and services

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market failure

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a situation in which a market left on its own fails to allocate resources efficiently

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property rights

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the ability of an individual to own and exercise control over scarce resources

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externality

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the impact of one person's actions on the well being of a bystander

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market power

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the ability of a single economic actor to have a substantial influence on market prices

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productivity

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the quantitiy of goods and services produced from each hour of a workers time

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inflation

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the increase in the overall level of proces in the economy

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business cycle

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fluctuations in economic activity such as employment and production

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circular flow diagram

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a visual model of the economy that shows how dollars flow through markets among households and firms

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production possibilities frontier

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a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

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macroeconomics

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the study of economy wide phenomena, including inflation, unemployment and economic growth

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microeconomics

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the sudy of how households and firms make decisions and how they interact in markets

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government purchases

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spending on goods and services by local, state, and fed govts.

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net exports

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spending on domestically produced goods by foreigners minus spending on foreign goods by domestic residents.
exports-imports=net export

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nominal GDP

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the production of goods and services valued and current prices

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real GDP

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the production of goods and services valued at constant prices

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GDP deflator

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a measure of the price level calculated as the ratio of nominal gdp to real gdp times 100

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consumer price index

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a measure of the overall cost of the goods and services bout by a typical customer

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CPI formula

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(price of basket of goods and services/ price of basket in base year) * 100

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inflation rate

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the percentage change in th eprice index from the preceding period

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producer price index

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a measure of the cost of a basket of goods and services bought by firms

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indexation

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the automatic correction of a dollar amoung for the effects of inflation by law or contract