MacroeconomicsHow do you define economics?- Knowing how to use your resources efficiently in order to be financially stable and have an understanding of money.- The majority of third world countries (Pakistan, Afghanistan, etc..) have cheap labor, where products such as clothes are cheaper to produce due tominimum wage payments.Three Important Questions in Economics- What to produce?- How to produce?- Who are you producing for?Resources- Labor- Capital- Land- EntrepreneurshipGDP (Gross Domestic Product)  the value of the sum of ALL goods and services provided throughout the economy- Componentso C(Consumption) I(investment) G(Government) X(Export) M(Import)70%Consumer Confidence Index a monthly evaluation of prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitudes and buying intentions, with data available by age, income, and region.Stagflation  when solving one economic problem leads to another. When there is no balance. Ex. High inflation and extremely high unemployment rateEquilibrium  The point where both supply and demand are the same. The point on a graph where both the supply and demand lines intersectClassical School  “Invisible hands will help in the long run” Let the market work on its own and it will take care of itself, if something becomes out of place the government will help push the prices back to equilibriumKeynesian  demand creates its own supply, but the government can step in to hell if neededCH.3 (Demand – Supply)QDA = f (PA)(Quantity Demanded of Product A) = (Function of Product A)Quantity demanded of product AQDA = a + b PA B = initial slope is negative PA $10 $5 D QDA $12 $20QDA = f(PA, y, PO, E, T+P, Tax, # of buyers) y  income PO  Price of other products T+P  Tastes and Preferences, Subsitute  Two products that are interchangeable(Ex.Coffee&Tea)Complimentary  Two products that cannot work without the other (Ex.Car&Gas)Supply and Demand and Market Efficency- Supply and demand curves can be used to show market efficiencyo Can be understood through consumer and producer surplusProducer Surplus  the difference between the current market price and the costof the firmChapter 5 Introduction to MacroeconomicsMacroeconomics  deals with the economy as a whole and focuses on the determinants of total national incomeAggregate Behavior  the behavior of all households and firms togetherSticky Prices  prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demandedMacroeconomic Concerns- Output (economic) growth- Unemployment- Inflation and DeflationOutput GrowthBusiness Cycle  the cycle of short-term ups and downs in the economyAggregate Output  the total quantity of goods and services produces in an economy in a given periodRecession  a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters.Depression  a prolonged or deep recessionExpansion or Boom  the period in the business cycle from a trough up to a peakduring which output employment growsInflation and DeflationInflation  an increase in the overall price levelHyperinflation  a period of very rapid increases in the overall price levelDeflation  a decrease in the overall price levelThe Components of the Macroeconomy- Households- Firms- Market- EconomyThe Circular Flow DiagramCircular Flow  a diagram showing the flows in and out of the sectors in the economyTransfer Payment  cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. They include Social Security benefits, veterans’ benefits, and welfare paymentsThe Three Market Arenas- The goods-and-services market- The labor market- Money marketGoods and Services Market- Households and the government purchase goods and services from firms in the goods and services marketLabor Market  households supply labor, and the firms and government demandlabor. Labor is also supplied to and demanded from the rest of the worldMoney Market  households supply funds to the money market expecting income in the form of dividends on stocks and interest on bonds. Households also demand funds from this market - The government borrows by issuing bonds- The rest of the world borrows from and lends to the money market- Much of this borrowing and lending is coordinated by financial institutions, which take deposits from one group and lend to another- Treasury bonds, notes, or bills  promissory notes issued when the federalgovernment borrows money- Corporate bonds  promissory notes issued by corporations when they borrow money- Shares of Stock  financial instruments that give to the holder a share in the firms ownership and a right to share the firms profits- Dividends  the portion of a firms profits that the firm pays out each period to shareholdersThe Role of the Government in the Macroeconomy- Fiscal Policy  government policies concerning taxes and spending- Monetary Policy  the tools used by the Federal Reserve to control short-term interest ratesHistory of Macroeconomics- Fine-tuning  phrase used by Walter Heller to refer to the government’s role in regulating inflation and unemployment- Stagflation  both high inflation and high unemploymentChapter 6 – Measuring the Nation’s Income- Why is average income high in some countries and low in others?- Why do prices rise rapidly in some time periods while they are more stable in others?- Why do production and employment expand in some years and contract in othersThe Economy’s Income and Expenditure- For an economy as a whole, income must equal expenditure because:o Every transaction has a buyer and a sellero Every dollar of spending by some buyer is a dollar of income for somesellerThe Measure of Gross Domestic Product (GDP)- A measure of the income and expenditures of an economy- Total market value of all final goods and services produced within a country in a given period of time*Important Phrases*- “GDP Is the Market Value”o Output is vauled at market price- “…of all…”o Includes all items produced in the economy and legally sold in markets- “…final…”o It records only the value of final goods, not intermediate goods (the value is counted only