Lecture 1 (1-24) Flashcards
Macroeconomics
Studies the aggravated effects of billions of individual decisions
Big Picture
While behavior of individual agents and institutions is underpinned by “micro” models of behavior
Examples of Macroeconomics
Great Depression: Billions of perfectly rational decisions can lead to economic catastrophe
Covid: Caused people to stop spending and start saving more, because people were staying inside —–>when covid ended people started buying more but supply chains were clogged—>Production went down—-> Inflation
Paradox of Thrift
people are told that spending is bad and to save all of their money. In reality, they are hurting the economy by doing this because they are not buying stuff which leads to recession
Economic History
Before Great Depression, economists did not think about macro topics
They trusted the economy to fix itself if it was left alone
Things went bad during the Great Depression and the economy didn’t fix itself
Keynesian Economics
-Developed by John Maynard Keynes
- Stated that the government needed to get involved to minimize economic fluctuations
Operated off of 3 ideas:
-Prices are sticky
-People are moved by animal spirits (not rational)
-We need to measure stuff and intervene with policy
GDP
The size of the economy
The premier way to measure economic growth.
Real GDP= Growth
Unemployment
The percentage of work force that is jobless
Inflation
The change in the overall price level
Monetary policy
Changing the money supply to change interest rates
Fiscal Policy
Changing gov. spending and or taxes (which also affects spending and prices)
-Get out of a recession by gov spending on projects
Cost-benefit principle
Incentives influence decisions
The opportunity cost principle
The true cost of something is the next best alternative you must sacrifice to get it
marginal principle
Decisions about quantities are best made incrementally
Interdependence principle
Your best choice depends on your other choices, the choices others make, developments in the mkts
