macroeconomics ihsane himmi [email protected]
TRANSCRIPT
Grades40% Final Exam
30% Midterm
20 % Participation
10% Project
Project Article analysis (once every two
classes) Financial Times The Economist Business Weekly etc
Chapter 1: Introduction to macroeconomics
He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value,
he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
Adam Smith
Definition of economics the study of how individuals and
societies use limited resources to satisfy unlimited wants.
Fundamental economic problem
scarcity. individuals and societies must
choose among available alternatives.
Economic goods, free goods, and economic bads economic good (scarce good) - the
quantity demanded exceeds the quantity supplied at a zero price.
free good - the quantity supplied exceeds the quantity demanded at a zero price.
economic bad - people are willing to pay to avoid the item
Economic resources land
natural resources, the “free gifts of nature”
labor the contribution of human beings
capital plant and equipment this differs from “financial capital”
entrepreneurial ability
Resource payments
Economic Resource Resource payment
land rent
labor wages
capital interest
entrepreneurial ability profit
Rational self-interest individuals select the choices that
make them happiest, given the information available at the time of a decision.
self-interest vs. selfishness
Positive and normative analysis
positive economics attempt to describe how the economy
functions relies on testable hypotheses
normative economics relies on value judgements to
evaluate or recommend alternative policies.
Economic methodology scientific method
observe a phenomenon, make simplifying assumptions and
formulate a hypothesis, generate predictions, and test the hypothesis.
Simplifying assumptions ceteris paribus – holding
everything else constant abstraction in economics
used to simplify reality
Logical fallacies fallacy of composition
occurs when it is incorrectly assumed that what is true for each and every individual in isolation is true for an entire group.
post hoc, ergo propter hoc fallacy (association as causation) occurs when one incorrectly assumes
that one event is the cause of another because it precedes the other.
Microeconomics vs. macroeconomics
microeconomics - the study of individual economic agents and individual markets
macroeconomics - the study of economic aggregates