You are on page 1of 40

INTRODUCTION

Slide 1

DR. EVANGELINE T. RIGAYEN

Introduction

Economics Social science that studies


societys problem of choice among a limited amount of resources in its quest to attain the highest practical satisfaction of its unlimited wants.

Slide 2

MACROECONOMICS: INTRODUCTION

Introduction

Economics Study of how individuals and


Ray Fair, Sharon Oster) Oster)

societies choose to use the scarce resources that nature and previous generations have provided. (Karl Case,

Slide 3

MACROECONOMICS: INTRODUCTION

Introduction

Economics Science that deals with the


(Besanko & Braeutigam) Braeutigam)

allocation of limited resources to satisfy unlimited human wants.

Slide 4

MACROECONOMICS: INTRODUCTION

Introduction

Economics Proper allocation and efficient use


of available resources for the maximum satisfaction of human wants.

Slide 5

MACROECONOMICS: INTRODUCTION

Introduction

Economics Derived from Greek word


oikonomos which means oikonomos household management or proper management of city-state city-

Slide 6

MACROECONOMICS: INTRODUCTION

Microeconomics VS Macroeconomics

 Microeconomics
Micro derived from the Greek word MIKROS which means SMALL.

 Macroeconomics
Macro derived from the Greek word MAKROS which means LARGE.

Slide 7

MACROECONOMICS: INTRODUCTION

Microeconomics
 Microeconomics deals with
the behavior of individual components of the

economy, economy, such as firms, households or individuals, and the economic relationships among them.

When Consuming
How we choose what to buy; how much we buy

When Producing
How we choose what to produce; how much to charge

Markets interaction of consumers and producers


Slide 8 MACROECONOMICS: INTRODUCTION

Microeconomics vs Macroeconomics

 The Linkage Between Micro and MacroMacroeconomics


 Microeconomics

is the foundation of macroeconomic analysis looks at the individual units. It sees and examines the trees. Macroeconomics looks at the whole or the aggregate. It sees and analyses the forest.
MACROECONOMICS: INTRODUCTION

 Microeconomics

Slide 9

Introduction
y Microeconomics examines the behavior of

individual decision-making unitsbusiness firms and households.


y Macroeconomics deals with the economy as a

whole; it examines the behavior of economic aggregates such as aggregate income, consumption, investment, and the overall level of prices.
y Aggregate behavior refers to the behavior

of all households and firms together.


Slide 10 MACROECONOMICS: INTRODUCTION

Introduction
Macroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or the microeconomic foundations of macroeconomics.

Slide 11

MACROECONOMICS: INTRODUCTION

Introduction
Connections to microeconomics: Macroeconomic behavior is the sum of all the microeconomic decisions made by individual households and firms. We cannot understand the former without some knowledge of the factors that influence the latter.

Slide 12

MACROECONOMICS: INTRODUCTION

Three Basic Questions


 All societies must decide:  What goods and services to produce and in what quantities?  Who will produce the goods?  Who will receive the goods and services?

Slide 13

MACROECONOMICS: INTRODUCTION

Resources
 Resources, or inputs, refer to anything
provided by nature or previous generations that can be used directly or indirectly to satisfy human wants. Capital resources Human resources Natural resources
Slide 14 MACROECONOMICS: INTRODUCTION

Economic Resources
 Economic Resources
 Also

called factors of production

 Includes

all natural, artificial, and human resources that are used in the production of goods and services categories Land, Labor, Capital
MACROECONOMICS: INTRODUCTION

 General

Slide 15

Economic Resources

Economic Resources
Land natural resources covering

anything found on the surface or under land. It includes water, forests, minerals, and other natural resources found in the air, soil, and sea.
MACROECONOMICS: INTRODUCTION

Slide 16

Economic Resources

Economic Resources
Labor composed of all human

physical and mental abilities and qualities used in production of goods and services.

Slide 17

MACROECONOMICS: INTRODUCTION

Economic Resources

Economic Resources
Capital includes produced goods,

such as machines, buildings, and computers, etc., that are used as factor inputs for further production.

Slide 18

MACROECONOMICS: INTRODUCTION

Consumer Vs Capital Goods

 Consumer Goods Vs Capital Goods


 Consumer

Goods directly satisfy the wants or needs of the ultimate purchaser or consumer. Example: food, clothing, cellphones

 Capital

Goods (real capital) indirectly satisfy consumer wants or needs through their use in production of consumer goods. Example: tractors, textile looms, machine tools
MACROECONOMICS: INTRODUCTION

Slide 19

Economic and Free Goods


 Economic Goods Vs Free Goods
 Economic goods are scarce and limited in the

quantity; therefore, their prices are positive.


 Free goods are goods that are not scarce.

Their prices are zero because of their unlimited quantity. Example: air

Slide 20

MACROECONOMICS: INTRODUCTION

Scarce Resources

 Scarce Resources
 

Goods or resources are considered scarce. scarce. Scarcity is considered to be the basic problem of economics. Since all resources are limited in their availability, and societys desires for them are unlimited, there must exist some process in determining what, how, how much, and for whom to produce.
MACROECONOMICS: INTRODUCTION

Slide 21

Scarce Resources

 Scarce Resources


Scarcity results from a combination of two factors: Quantities of goods are limited Desire for goods is unlimited

Slide 22

MACROECONOMICS: INTRODUCTION

Method of Economics

 Empirical economics refers to the


collection and use of data to test economic theories.

Ceteris paribus, or all else equal, paribus, equal,

assumption, assumption, economists study the relationship between two variables while the values of other variables are held unchanged.
MACROECONOMICS: INTRODUCTION

Slide 23

Theories and Models A theory or principle is a general


statement of cause and effect, action and reaction. Represented by models in the form of graph, verbal statements, numerical tables and mathematical equations.

Slide 24

MACROECONOMICS: INTRODUCTION

Theories and Models A model is a formal statement of a


theory. Models are descriptions of the relationship between two or more variables. that irrelevant detail should be cut away. Models are simplifications, not complications, of reality.
MACROECONOMICS: INTRODUCTION

Ockhams razor is the principle

Slide 25

Methods of Economics
 Normative economics, also called policy economics,
economics, analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action.

 Positive economics studies economic


behavior without making judgments. It describes what exists and how it works.
Slide 26 MACROECONOMICS: INTRODUCTION

Macroeconomics Concerns
Inflation is an increase in the overall price level. Hyperinflation is a period of very rapid increases in the overall price level. Hyperinflations are rare, but have been used to study the costs and consequences of even moderate inflation. Deflation is a decrease in the overall price level. Prolonged periods of deflation can be just as damaging for the economy as sustained inflation.
Slide 27 MACROECONOMICS: INTRODUCTION

Introduction
Aggregate output is the total quantity of goods and services produced in an economy in a given period.

Slide 28

MACROECONOMICS: INTRODUCTION

Introduction
The unemployment rate is the percentage of the labor force that is unemployed. The unemployment rate is a key indicator of the economys health. The existence of unemployment seems to imply that the aggregate labor market is not in equilibrium.

Slide 29

MACROECONOMICS: INTRODUCTION

Introduction
There are three kinds of policy that the government has used to influence the macroeconomy:
1. Fiscal policy 2. Monetary policy 3. Growth or supply-side policies

Slide 30

MACROECONOMICS: INTRODUCTION

Introduction
Fiscal policy refers to government policies concerning taxes and spending. Monetary policy consists of tools used by the Federal Reserve to control the quantity of money in the economy. Growth policies are government policies that focus on stimulating aggregate supply instead of aggregate demand.
Slide 31 MACROECONOMICS: INTRODUCTION

Introduction
y The circular flow diagram shows the

income received and payments made by each sector of the economy.

Slide 32

MACROECONOMICS: INTRODUCTION

Introduction
y Everyones expenditure is someone elses receipt. Every transaction must have two sides.

Slide 33

MACROECONOMICS: INTRODUCTION

Introduction
Transfer payments are payments made by the government to people who do not supply goods, services, or labor in exchange for these payments.

Slide 34

MACROECONOMICS: INTRODUCTION

Introduction
Households, firms, the government, and the rest of the world all interact in three different market arenas: 1. Goods-and-services market 2. Labor market 3. Money (financial) market

Slide 35

MACROECONOMICS: INTRODUCTION

Introduction
Households and the government purchase goods and services (demand) from firms in the goods-and services market, and firms supply to the goods and services market. In the labor market, firms and government purchase (demand) labor from households (supply). The total supply of labor in the economy depends on the sum of decisions made by households.
Slide 36 MACROECONOMICS: INTRODUCTION

Introduction
In the money marketsometimes called the financial markethouseholds purchase stocks and bonds from firms. Households supply funds to this market in the expectation of earning income, and also demand (borrow) funds from this market. Firms, government, and the rest of the world also engage in borrowing and lending, coordinated by financial institutions.
Slide 37 MACROECONOMICS: INTRODUCTION

Introduction
Treasury bonds, notes, and bills are promissory notes issued by the government when it borrows money. Corporate bonds are promissory notes issued by corporations when they borrow money.

Slide 38

MACROECONOMICS: INTRODUCTION

Introduction
Shares of stock are financial instruments that give to the holder a share in the firms ownership and therefore the right to share in the firms profits. Dividends are the portion of a corporations profits that the firm pays out each period to its shareholders.

Slide 39

MACROECONOMICS: INTRODUCTION

Introduction
y Aggregate demand is the total demand for goods and services in an economy.

Aggregate supply is the total supply of goods and services in an economy. Aggregate supply and demand curves are more complex than simple market supply and demand curves.

Slide 40

MACROECONOMICS: INTRODUCTION

You might also like