Lecture 1: Introduction to macroeconomics

Principles of Macroeconomics Dr.Do Xuan Luan Faculty of economics and rural development (FERD), Thai Nguyen University of Agriculture and Forestry (TUAF) List of all lectures Introduction to macroeconomics; Gross Domestic Product (GDP); Economic growth; Unemployment Inflation; Aggregate Demand & Aggregate Supply (AS-AD model); Expenditure decision and GDP Fiscal Policy; Monetary Policy; 10 Combined effects of monetary and fiscal policy; 11 Trading with the world; Lecture Introduction of macroeconomics & learning outcome Define economics and the features of the economic perspective Describe the role of economic theory in economics Distinguish microeconomics from macroeconomics and positive economics from normative economics List the categories of scarce resources and delineate the nature of the economizing problem Differentiate between positive & normative economics; short-run & long-run in economics Unit1:Introduction to Economics Scarcity Economic activity and economics Choice The production Possibilities Model Opportunity costs The economics perspective • Scarcity • Decision making tool: comparing costs and benefits • Choice • Purposeful behavior Resource scarcity • Scarcity means that wants always exceed the resources available to satisfy them – You can not always get what you want – i.e: Government expenditure on increasing wage can reduce national investment Economic activity and economics • Economic activity: is what people to cope with scarcity • Economics: Economics is the study of how people use their limited resources to try to satisfy unlimited wants (dismal science) Choice • Faced with scarcity, people must make choices • we have to choose among the available alternatives • To make a choice, we compare the benefits of having more of one thing against the costs Purposeful Behavior Economics assumes that human behavior reflects “rational self-interest.” Individuals look for and pursue opportunities to increase their utility Purposeful in deciding: - what goods and services to buy - what products to produce and how to produce them - what public services to provide and how to finance them “Purposeful behavior” does not assume that people and institutions are immune from faulty logic and therefore are perfect decision makers Choice by government Benefits for economy Government decision making tool Costs for economy The role of economic theory in economics Economists develop theories of the behavior of economy: i.e how fiscal & monetary policy work? Theories, principles, and models are “purposeful simplifications.” i.e: the circular flow of goods & services, the AS-AD model Economic principles and models are highly useful in analyzing behavior and understanding how the economy operates Tradeoff by the choices of government • Making choices in the face of scarcity implies a cost • What must be given up in order to have something (opportunity cost) For example: - Economic growth or environmental pollution? – Fish or steel? – Unemployment or inflation? Economics Positive economics the economic of what is… and predicting: i.e: inflation is a continuous increase in average price Normative economics judges is it good or bad? The economic of what should be? i.e: Government should control inflation Difference between macroeconomics and microeconomics • Macroeconomics • Microeconomics  deal with the performance, structure, behavior, and decision-making of an economy as a whole  deal with the behavior of individual entities such as a particular market, firms consumers  GDP, aggregate demand & supply, economic growth, average price, happiness, inflation, unemployment, etc  Revenue, cost, profit, price, utility in consumption, elasticity, supply and demand, labor market, etc  to determine an economy's overall health, standard of living  to determine methods of improvement for individual business entities Time period in macroeconomics Short-run v.s Long-run Short Run Long Run At least one resource All resources (labor, (labor, capital, land, capital, land, production production processes) processes) can be all are fixed or taken as variable (i.e given www.themegallery.com changeable) Company Logo Key point summary Economics examines how individuals, institutions, and society make choices under conditions of scarcity Economists categorize economic resources as land, labor, capital, and technology The economic perspective stresses (a) resource scarcity and the necessity of making choices, (b) the assumption of purposeful (or rational) behavior, and (c) comparisons of benefit and cost In choosing the best option, government incurs an tradeoff or opportunity Economists use the scientific method to establish economic theories—cause-effect generalizations about the economic behavior of an economy Macroeconomics examines the economy as a whole while microeconomics focuses on specific decision-making units of the economy, Positive economics deals with factual statements (“what is”); normative economics involves value judgments (“what ought to be”) Assignment 1) Give an example of opportunity cost 2) Give an example to show the difference between macroeconomics and macroeconomics 3) Give an example to show the difference between normative and positive economics; www.themegallery.com Click to edit company slogan