Economics
Economics is the social science that studies the choices that? individuals, businesses,? governments, and entire societies make as they cope with scarcity?,
and the incentives that influence and reconcile those choices.
Economics divides into two main par
Scarcity
- Scarcity is our inability to satisfy all our wants.
- Scarcity is the condition that arises because wants exceed the abilities of resources to satisfy them.
MacroEconomics
Macroeconomics is the study of the aggregate effects on the national economy and the global economy of the choices that? individuals, businesses, and governments make.
Factors of Production
Factors of production are divided into the four categories of? land, labor,? capital, and entrepreneurship.
- Not human capital
Labor
Labor is the work time and work effort people devote to producing a good or service
Capital
...
Human Capital
Human capital is the knowledge and skill that people obtain from? education, on-the-job? training, and work experience.
Human capital determines the quality of labor and grows as people obtain work experience.
MArginal Cost
The cost of an increase in an activity is called marginal cost.
Cause and Effect
To disentangle cause and? effect, economists use economic models and look for natural? experiments, conduct statistical? investigations, and perform economic experiments to test the predictions of those models.
- A natural experiment is a situation that a
Economic Model
An economic model is a description of some features of the economic world that includes only those features assumed necessary to explain the observed facts.
Opportunity cost
- The opportunity cost of an action is the? highest-valued alternative forgone.
- Opportunity cost is a ratio. It is the decrease in the quantity produced of one good divided by the increase in the quantity produced of another good as we move along the pr
PPF (production possibilities frontier)
A PPF illustrates a model economy in which the quantities produced of only two goods? change, while the quantities produced of all the other goods and services remains the same.
Allocative Efficiency
When we cannot produce more of any good without giving up some other good that we value more? highly, we have achieved allocative efficiency and we are producing at the point on the PPF that we prefer above all other points.
Real Flow Vs. Money flow
The flows in the market economy that go from firms to households are the real flows of goods and services and the money flows of? wages, rent,? interest, and profit.
The flows in the market economy that go from households to firms are the real flows of? l
Quantity Demanded
The quantity demanded of a good or service is the amount that consumers plan to buy during a given time period at a particular price.
The quantity demanded is not necessarily the same as the quantity actually bought.
Sometimes the quantity demanded exceed
Complements and Substitutes
A substitute is a good that can be used in place of another good.
A complement is a good that is used in conjunction with another good.
Normal and Inferior goods
A normal good is one for which demand increases as income increases.
An inferior good is one for which demand decreases as income increases.
Substitutes and complements of production
Substitutes in production are goods that can be produced by using the same resources.
Complements in production are goods that must be produced together.
When the price of a substitute in production? rises, the supply of the other good decreases.
When the
Net Exports
Net exports is the value of exports minus the value of imports.
GDP sum calculation
Consumption? expenditure, investment, government? expenditure, and net exports are the items of aggregate? expenditure, which sum to GDP
Comparing GDP
- So we convert the real GDP of one country into the same currency units as the real GDP of the other? country, and use the same prices to value the goods and services in the countries being compared.
- To make comparisons of real GDP between two? countri
The crowding out effect
The? crowding-out effect is the tendency for a government budget deficit to raise the real interest rate and decrease investment.
M1
currency and travelers checks + checking deposits
M2
M1+ Savings deposits + checking Deposits + Money market mutual funds and other deposits
When the fed buys securities
When the Fed buys? securities, the money creation process follows the following eight? steps:
1. Banks have excess reserves.
2. Banks lend excess reserves.
3. The quantity of money increases.
4. New money is used to make payments.
5. Some of the new money
quantity of money
The quantity of money that people plan to hold depends on four main? factors, which are the price? level, the nominal interest? rate, real? GDP, and financial innovation.
Increase in US demand for imports
Increases the supply of US dollars
A rise in the US interest rate differential
decreases the supply of US dollars
A rise in the expected future exchange rate
decreases the supply of US dollars
A decrease in the world demand for US exports
Does not change the supply of US dollars
Interest rate parity
Interest rate parity means equal rates of return. Adjusted for? risk, interest rate parity always prevails.
idk
The current account records receipts from exports of goods and services sold? abroad, payments for imports of goods and services from? abroad, net interest income paid? abroad, and net transfers? (such as foreign aid? payments).
The current account balanc