ECON 102 1st Edition Lecture 12 Outline of Last Lecture 1 Measuring Gains Losses from trade 2 Free Trade a Trade Protection Measures Outline of Current Lecture I Macroeconomics Theory Policy and History a Policies b Business Cycles Current Lecture Microeconomics Focuses on how decisions are made by individuals and firms and the consequences of those decisions Macroeconomics Examines the aggregate behavior of the economy that is how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole o EX Overall level of prices in economy rather than o The behavior of the whole macroeconomy is indeed greater than the sum of individual actions and market outcomes Self regulating economy Problems such as unemployment are resolved without government intervention through the working of the invisible hand According to Keynesian economics British economist J M Keynes economic slumps are caused by inadequate spending and they can be mitigated by government intervention Policies Monetary Policy uses changes in the quantity of money to alter interest rates and affect overall spending Federal Bank Central Banks o Deals with money supply and interest rates o Not a part of the government Fiscal Policy uses changes in government spending and taxes to spending overall o Deals with taxes expenditure o Controlled by the government Business Cycle Business Cycle the short run alternation between economic downturns and economic upturns Depression A very deep and prolonged downturn These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Recession Periods of economic downturns when output and employment are falling Expansions sometimes called recoveries periods of a normal economic upward trend Business Cycle Peak The point at which the economy shifts from expansion to recession Business Cycle Trough The point at which the economy shifts from recession to expansion Taming the Cycle British Economist J M Keynes o Suggested a relook at hands off approach to markets o Emphasized role of government in stabilizing the economy o Prior to Keynes economists believed that invisible hand would work its magic Long Run Economic Growth Long run economic growth the sustained upward trend in the economy s output over time A country can achieve a permanent increase in the standard of living of its citizens only through long run growth Inflation and Deflation Inflation A rising aggregate price level Deflation A falling aggregate price level Inflation Rate The annual percent change in the aggregate price level Price Stability In which the overall level of prices is changing if at all only slowly
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