Three approaches to simple macro economics

Examples cited of such inefficiency include high unemployment during a business-cycle recession or economic organization of a country that discourages full use of resources.

The Economics of Labor and Trade The building blocks of economics are the studies of labor and trade. The product method looks at the economy Three approaches to simple macro economics an industry-by-industry basis. Classical unemployment theory suggests that unemployment occurs when wages are too high for employers to be willing to hire more workers.

It has been observed that a high volume of trade occurs among regions even with access to a similar technology and mix of factor inputs, including high-income countries. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded.

Central banks generally try to achieve high output without letting loose monetary policy that create large amounts of inflation. Being on the curve might still not fully satisfy allocative efficiency also called Pareto efficiency if it does not produce a mix of goods that consumers prefer over other points.

The subject addresses such matters as tax incidence who really pays a particular taxcost-benefit analysis of government programmes, effects on economic efficiency and income distribution of different kinds of spending and taxes, and fiscal politics.

Forms include monopoly in which there is only one seller of a goodduopoly in which there are only two sellers of a goodoligopoly in which there are few sellers of a goodmonopolistic competition in which there are many sellers producing highly differentiated goodsmonopsony in which there is only one buyer of a goodand oligopsony in which there are few buyers of a good.

The graph depicts an increase that is, right-shift in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve S. Public goods are goods which are under-supplied in a typical market.

Some of them allow the interest rate to fluctuate and focus on targeting inflation rates instead.

Measures of national income and output

The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is weighed against the value of that activity in deciding on more or less of it. Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets.

In the long runall inputs may be adjusted by management. It can also be generalized to explain variables across the economyfor example, total output estimated as real GDP and the general price levelas studied in macroeconomics. Their usage rates can be changed easily, such as electrical power, raw-material inputs, and over-time and temp work.

These are represented in theoretical and empirical forms as in the neoclassical and endogenous growth models and in growth accounting.

Although economists categorize market failures differently, the following categories emerge in the main texts. Similarly, demand-and-supply theory predicts a new price-quantity combination from a shift in demand as to the figureor in supply. It has been described as expressing "the basic relationship between scarcity and choice ".

In a perfectly competitive marketsupply and demand equate marginal cost and marginal utility at equilibrium.

National income

Government spending, G, is the sum of expenditures by all government bodies on goods and services. For the GDP of a particular country, production by foreigners within that country is counted and production by nationals outside of that country is not counted.

The IS—LM model represents all the combinations of interest rates and output that ensure the equilibrium in the goods and money markets. A widely accepted general standard is Pareto efficiencywhich is reached when no further change can make someone better off without making someone else worse off.

Macroeconomics Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form of general-equilibrium theory.

For instance, when the government pays for a bridge, the project not only adds the value of the bridge to output, but also allows the bridge workers to increase their consumption and investment, which helps to close the output gap. These reports are usually published periodically by governmental agencies or private organizations, and they often have a considerable effect on stockfixed incomeand forex markets when they are released.

The actual usefulness of a product its use-value is not measured — assuming the use-value to be any different from its market value.


Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred. In perfectly competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price.

This pushes the price down. According to these more recent theories, unemployment results from reduced demand for the goods and services produced through labor and suggest that only in markets where profit margins are very low, and in which the market will not bear a price increase of product or service, will higher wages result in unemployment.

Other factors can change demand; for example an increase in income will shift the demand curve for a normal good outward relative to the origin, as in the figure. It provides a mathematical foundation of industrial organizationdiscussed above, to model different types of firm behaviour, for example in an solipsistic industry few sellersbut equally applicable to wage negotiations, bargainingcontract designand any situation where individual agents are few enough to have perceptible effects on each other.Economics is a branch of social science focused on the production, distribution and consumption of goods and services.

Three Approaches to Simple Macro Economics Introduction to Macroeconomics – three approaches After the Great Depression in the s, Simon Kuznets first developed the idea of an instrument, which could - just like a clinical thermometer - measure the economic development within a country, the Gross Domestic Product (GDP).

Three Approaches to Simple Macro Economics Introduction to Macroeconomics – three approaches After the Great Depression in the s, Simon Kuznets first developed the idea of an instrument, which could - just like a clinical thermometer - measure the economic development within a country, the Gross Domestic Product (GDP).

ily more accurate than simple, ad-hoc models. Three decades of attempts to base aggregate supply on taught by someone who specializes in macro-economics; and whatever topics my popular writ-ings may cover, my professional specialities are approaches that everyone is supposed to know, the models that underlie discussion at, say, the Fed.

National income. National income is the total value a country’s final output of all new goods and services produced in one year.

Understanding how national income is created is the starting point for macroeconomics. The national income identity. Mar 15,  · In this video I explain the three stages of the short run aggregate supply curve: Keynesian, Intermediate, and Classical.

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Three approaches to simple macro economics
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