Lecture 13 Flashcards
Micro Vs Macro questions
Microeconomic Questions:
Definition: Microeconomic questions pertain to the analysis of individual markets, firms, or consumers, focusing on specific economic agents and their interactions. These questions delve into the behaviors, decisions, and dynamics at the level of individual economic units.
Example: “How does a change in the price of coffee impact the quantity demanded by consumers in a specific city?”
Macroeconomic Questions: Definition: Macroeconomic questions involve the study of the economy as a whole, examining aggregate phenomena such as total output, employment, inflation, and government policies. These questions explore broad economic trends, policies, and relationships that affect the overall performance of a nation’s economy. Example: “What factors influence the overall unemployment rate and inflation level in a country?”
Microeconomics, which is concerned with the consumption and production decisions of individual consumers and producers and with the allocation of scarce resources among industries, was already a well-developed branch of economics.
But macroeconomics, which focuses on the behavior of the economy as a whole, was still in its infancy.
Paradox Thrift
- Paradox of thrift: When families and businesses are worried about the possibility of economic hard times, they prepare by cutting their spending. This reduction in spending depresses the eeconomy as consumers spend less and usinesses react by laying off workers. As a result, families and businesses may end up worse off tha if they hadn’t tried to act respoinbily by cutting their spending
Monetary Policy and Fiscal policy
- Monetary policy: Central bank: uses changes in the quantity of money to alter interest rates and oerall spending
A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan
- Fiscal policy: Uses changes in govermtn spending and taxes to affect overall spending
- Fiscal policy deals with tax policy and government spending. Monetary policy is enacted by a government’s central bank
What is a negative of inflation: and what is open economy
- Recission most important effect: The important important effect of a recsssion is its influence on the ability of workers to find and hold jobs which hurt the standard of living of many families
- Open economy: trades goods and services with other countries
Self regulating economy
self-regulating economy, problems such as unemployment are resolved without government intervention, through the working of the invisible hand.
Keynesian economics
Keynesian economics
a theory that states that economic slumps are caused by inadequate spending and they can be mitigated by government intervention.
Keynes argued that government intervention can help a depressed economy through monetary policy and fiscal policy.
eynes argued that during periods of economic downturns, households and businesses may become cautious and reduce their spending. This reduction in spending can lead to a decrease in overall demand for goods and services.
Pre vs post 1930 conventional
Pre vs post 1930 conventional wwisdom:
1) Pre 1930 conventional wisdom: Self regularign economiy
- Self regulating economic: problems such ans unemployment are resolved without government intervention trhough the working of the invisible had
2) Post 1930 conventional wisdom: Keynesian economics:
- : Economics slumps are caused by inadqueate spending and they can be mitigated by govermetn itnernvation
Contractions and expansions
- Recessions (contractions): periods of economic downturns, when output and employment are falling
- Expansions (recoverieis): periods of economic upturn, when output and employment are rising
- Business cycle: the short run alternation between recssions and expansaion
Inflation, deflation, stability
Inflation and deflation:
* Inflation: a rising overall level of prices is inflation
* Deflation: a falling overall level of prices is deflation
* Stability: the ecomomic has pirce stability when the oeralll level of pirce changes slowly or not at all
* Short run movments in inflation: in the short run, movment sininflation are closely related to the business cycle
What Causes Deflation? There are two big causes of deflation: a decrease in demand or growth in supply. Each is tied back to the fundamental economic relationship between supply and demand. A decline in aggregate demand leads to a fall in the price of goods and services if supply does not change
T he point in time at which the economy shi s from expansion to recession is known as a. the point at which the economy shi s from recession to expansion is known as a
he point in time at which the economy shi s from expansion to recession is known as a business-cycle peak; the point at which the economy shi s from recession to expansion is known as a business-cycle trough.
What happens when a economy is booming vs depressed
When economy is depressed vs blooming: when the economic is depressed and the hobs are hard to find, inflation tends to fall; when the eocnomiy is booing inflation tends to rise employment so jobs are easier to find
Trade deficit vs trade surplus
- Trade deficit: the value of goods and services bought from foreigners is more than the value of goods and services sold to them
- Trade surplus: the value of goods and services bought from foreigners is less than the value of the goods and services sold to them
Long-run economic growth
Long-run economic growth is the sustained upward trend in the economy’s output over time.
Real GDP per capita
eal GDP per capita, a measure of total output per person,
Long-run growth per capita—a sustained upward trend in output per person
—a sustained upward trend in output per person
