Chapter 1 Flashcards
capitalism
an economic system where the focus lies on private property right
major flows in economy
Production
income
spending
production
NLECT
Natural resources- quality vs quantity Labour- skills , human capital Entrepreneurs- take risk capital- used to transform natural resources Technology
Income
flip side of production reward to FOP Rent to natural resources wages & salaries to labor Interest to capital profit to entrepreneur
Spending
CIGXZ)
Use income to satisfy wants consumption expenditure by households investment expenditure by firms Government spending Exports X - imports Z
Circular flow
Goods market - any contact or communication between potential buyers and potential sellers of goods and services.
factor market -purchased and sold in many different markets
injections (GIE)
& leakages (SIT
injections - Government spending on goods and services
investment spending
Exports
leakages- Saving, imports, taxes
Macroeconomic theory
- Simplification, abstraction, model
- Assumptions
- Purposes:
- Explanation
- Prediction
- Policy
Macroeconomic policy
- Economic growth
- Full employment/low stable unemployment
- Price stability/low stable inflation
- Balance of payments stability/external stability
- Equitable/socially acceptable distribution of inco
Microeconomics vs Macroeconomics
- Microeconomics focuses on individual parts of the economy
- Individual consumers, households, firms
- Utility, prices of products
- Macroeconomics focuses on the economy as a whole
- Studies the total (or aggregate) economic behaviour
- Production, price index
The mixed economy
• Three central questions:
1. What goods and services must be produced and in what
quantities?
2. How should each of the goods and services be produced?
3. For whom should the goods and services be produced?
• Three mechanisms:
1. Traditional
2. Command: State makes decisions
3. Market: Market mechanism drive decisions
Market?
A place where buyers and sellers meet and
trade goods and
services.
