Macroeconomics Chapter 1 PDF

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Lecture notes from chapter 1 of Macroeconomics...

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Macro Chapter 1

Intro: What is Economics? -science of choice -exploring the choices made by individuals and organizations -macroeconomics: study of nation’s economy as a whole 

Focuses on the issues of inflation, unemployment and economic growth

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Explains why economies grow and change and why economic growth is sometimes interrupted

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Explains why resources increase over time and the consequences for our standard of living

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General trend of rising per capita income

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Used to make informed business decisions

-scarcity: the resources we use to produce goods and services are limited -Factors of Production(resources) 

Natural Resources: Resources provided by nature and used to produce goods and services

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Labor: Human effort, including both physical and mental effort people, used to produce goods and services

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Physical Capital: The stock of equipment, machines, structures, and infrastructure that is used to produce goods and services

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Human Capital: The knowledge and skills acquired by a worker through education and experience and used to produce goods and services

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Entrepreneurship: The effort used to coordinate the factors of production—natural resources, labor, physical capital, and human capital—to produce and sell products

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Difference between human capital and labor  Human capital is the knowledge, competence, and the ability of people to perform labor  Labor is the actual work done

-Positive Analysis 

Answers the question “What is?” or “What will be?”

-Normative Analysis 

Answers the question “What ought to be”

-Bias is error -The way to falsify something is to prove that its wrong -Wealth of a nation depends on education and its goods and services -ceterus paribus: holding things constant -Good Capitalism, Bad Capitalism by Baumol, Litan, and Schramm -2) large firm capitalism ; France -1) small firm capitalism; Australia (government owned) -3) autocratic capitalism; China -4) plutocratic capitalism; Russia -Three Key Economic questions 

What products do we produce?

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How do we produce the products?

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Who consumes the products? (determined by price)” .

-Economic Model: a simplified representation of an economic environment

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Blueprint

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Theory  Thesis (research) 1. Identify a problem/theory 2. Variable (things change) 3. Isolate variables 4. Make assumptions 5. Collect Data (cleaning) 6. Test Model  Conclusion 7. Predict Behavior

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Opportunity cost is higher because mother has more to lose

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Tragedy of Commons (selfish)

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Prisoner’s Dilemma

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Failures of Models:  Fail to control the variables  Cause and effect error

-OECD: Organization for Economic Cooperation and Development (30-45 countries) -LDC: Lesser Developed Countries (Majority of countries) -Transition Economy: LDC trying to become and OECD...