Macroeconomics understanding the wealth of nations pot

[...]... growth of output in the whole economy, the economic performance of an economy does reflect the combination of all these millions of decisions For instance, the U.S Federal Reserve will be concerned about the overall change in the level of prices in the United States, monitoring the economy for signs of inflation The inflation rate reflects the number of firms that are increasing prices and the amount by which... such as the overall levels of output, consumption, employment, and prices—and how they move over time and between countries In terms of prices, microeconomics focuses on, for instance, the price of a particular firm’s product, whereas macroeconomics focuses on the exchange rate (the price of one country’s money in terms of that of another country) or the interest rate (the price of spending today rather... instance, how the overall level of saving in an economy is determined; how the total level of investment is generated; how the level of unemployment evolves; the pattern of overall imports and exports; what determines the level of training of the workforce Macroeconomics is therefore essentially about the backdrop of economic activity against which firms, governments, and consumers make their decisions... you only have to count the number of bags of onions that are harvested But what if the country also starts growing garlic? The first, and obvious, response is to count both the number of bags of onions and of garlic But this raises difficult issues What if one year there is a harvest of four bags of onions and two of garlic, and the next year there are two bags of onions and four of garlic? Has output... outcomes The above examples (the conduct of monetary policy and the sources of overall economic growth) suggest that macroeconomics is about the economy as a whole In part this is correct: macroeconomics does focus on how the whole economy evolves over time rather than on any one sector, region, or firm Yet macroeconomics also considers the important issues from the perspective of the firm and/or the individual... government provide the framework of rules within which firms operate In Chapter 8 we will discuss free trade and the battle between Airbus of Europe and Boeing of the United States For each firm, success in the marketplace requires understanding not just the products and strategy of the opposition but also the policy stance of European and American governments as well as the attitude of international organizations... organizations like the World Trade Organization Understanding the interests and behavior of the government and its policies is therefore an important part of corporate strategy, and this requires a good understanding of macroeconomics Any firm considering investing in Argentina would need to consider the potential for another currency crisis—which is a macroeconomic question THE RELATIVE SIGNIFICANCE OF AGGREGATE... Microsoft and $195bn for Intel—it would have been impossible to have foreseen this 30 years ago Understanding these long-run forces and responding appropriately to them are crucial for the health of both you and any company you might work for; it is the subject of much of this textbook Analytical Questions SUMMARY Economics is the study of the allocation of scarce resources Macroeconomics studies how the. .. let’s think of another way of outlining the differences between microeconomics and macroeconomics In microeconomics the focus is on a small group of agents, say a group of consumers or two firms battling over a particular market In this case economists pay a great deal of attention to the behavior of the agents the model is focusing on They make assumptions about what consumers want or how much they have... E F I N I T I O N Economics is the study of the allocation of scarce resources The basic idea is simple: each of us has an almost inexhaustible list of desires, but most of us have a finite amount of money (or, more generally, resources) with which to satisfy these desires The British economist Adam Smith, whose book Wealth of Nations (published in 1776) was arguably the first seminal treatise on economics, . pm Page ii MACROECONOMICS UNDERSTANDING THE WEALTH OF NATIONS ffirs-uk.qxd 12/8/04 12:20 pm Page iii ffirs-uk.qxd 12/8/04 12:20 pm Page iv MACROECONOMICS UNDERSTANDING THE WEALTH OF NATIONS v SECOND. CONTENTS INTRODUCTION CHAPTER 1 What Is Macroeconomics? 1 CHAPTER 2 The Language of Macroeconomics: The National Income Accounts 13 ECONOMIC GROWTH AND THE SUPPLY SIDE CHAPTER 3 The Wealth of Nations The Supply Side. 261 11.3 THE COSTS OF INFLATION AND THE DANGERS OF DEFLATION 264 11.4 THE NATURE OF MONEY 270 11.5 THE MONEY SUPPLY 273 11.6 HOW BANKS MAKE MONEY THE MONEY MULTIPLIER 275 11.7 SEIGNORAGE AND THE INFLATION