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Instructor:
Sireen Abdelqader
Student Name:
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Course Name
Course Code
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Assignment Name
Lama Ibrahim ALGarni
201200434
Introduction of Macroeconomics
Econ
205
12064
Macro Assignment #1
Instructions Complete the information required and staple this
Identifying Page to all out-of-class-assignments.
Chapter 1
Economics: is the study of how societies use scarce resources to produce valuable goods and
services and distribute them among different individuals.
Scarcity: goods are limited relative to desires
Economic efficiency: requires that an economy produce the highest combination of quantity and
quality of goods and services given its technology and scarce resources.
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The economy cannot produce more of one good without producing less of another if it
wants to produce efficiently.
In this chapter we studied the difference between micro and macro:
Microeconomics: the behavior of individual components of an economy (households, private
firms).
Macroeconomics: the functioning of the economy taken as a whole.
The logic of economics:
- Scientific approach: to identify economic problems, formulate theories, collect and
analyze data.
- Econometrics: a specialized branch of statistics, in an attempt to accept or refute
economic theories.
The three problems of economic organization:
- What goods and services to produce?
- How are goods produced? (Deal primarily with the production process).
- For whom are goods produced? (Who will get the outputs that are produced).
Market, Command, and Mixed Economy:
- Market economy: individuals and private firms make the major decisions about
production and consumption.
- Command economy: the government makes the decision.
- Mixed economies: both market and command decision making.
Inputs: are commodities or services that are used to produce goods and services.
Output: useful goods or services that result from the production process.
Factors of production:
- Land. (Natural resources)
- Labor. (Human time spent on production)
- Capital. (Factors, trucks, computers)
The production-possibility frontier (PPF): shows the maximum quantity of goods that can be
efficiently produced by an economy, given its technological knowledge and the quantity of
available inputs.
- The effect of economy growth on a country’s production possibilities: an increase in
inputs, enables a country to produce more of all goods and services. Thus shifting out the
PPF.
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Opportunity costs: measure the cost of doing something in terms of the next-best
alternative that is given up.
Questions:
1-What are the three problems of economic organization?
- What goods and services to produce?
- How are goods produced?
- For whom are goods produced?
2-When the PPF start to shift out?
When there is an increase in the level of inputs in the country which enable it to produce
more goods and services.
Chapter 2
The market mechanism:
A market is a mechanism through which buyers and sellers interact to determine prices
and exchange goods, services and assets.
- Prices are the balance wheel of the market mechanism.
Market Equilibrium: occurs when the price is such that the quantity that buyers are
interested in purchasing is equal to the quantity that sellers are interested in supplying to
the market.
How markets solve the three economic problems:
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What: determined by the dollar votes of consumers in their daily purchase
decisions.
How: determined by the competition among different producers.
For whom things are produced: who is consuming and how much- depends, in
large part on the supply and demand in the markets for factors of production.
Trade, Money, and Capital:
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Trade: Advanced economies use complex systems of trade in order to accumulate
the bundle of goods and services that the people in that economy want to
consume.
Specialization: People produce the goods and services that they can produce most
efficiently, and then they trade their excess for other items that they need.
Division of labor: dividing production into a number of small specialized steps or
tasks.
• Money is not an input or factor of production.
• The term capital does not refer to money.
• It refers to productive inputs that have been manufactured.
Perfect competition: no firm or consumer is large enough to affect input or output
market prices.
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Imperfect Competition: occurs when a buyer or seller can affect a good’s price. Society may
move inside its PPF.
Externalities: occur when a firm or people impose costs or benefits on others outside the
marketplace.
Public goods: commodities which can be enjoyed by everyone and from no one can be
excluded.
Questions:
1-what does it mean by market Equilibrium?
It means that the quantity of goods that the consumers want to buy is equal to the quantity that
sellers have supplied. In other words, supply equal to demand.
2- Does the capital refer to money?
No, it doesn’t. It refers to productive inputs that have been manufactured.
Chapter 3
The Demand Schedule:
Demand Curve: the graphical representation of the demand schedule.
The market demand: represents the sum total of all individual demands. Adding together the
quantities demanded by all individuals at each price.
Forces behind the Demand Curve:
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Average income. (High income, people buy more0
Size of the market. (Measured by the number of population)
The prices and availability of related goods. ( if two goods have same functions, people
buy the cheaper)
Tastes and preferences. (Many cultural and historical influences)
Special influences. (May effect particular good)
The supply Schedule:
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As the price of the good increases, more goods will be produced, at higher prices, the
producers will hire more workers to produce more and more, all these will increase the
output of the good at higher market prices, which maximize the profit.
The supply curve is upward slope supply.
Forces behind the Supply Curve:
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•
Cost of Production.
Prices of inputs.
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• Prices of related goods.
• Government Policy.
• Special influences.
Shifts in the supply and demand curves change the equilibrium price and quantity.
Questions:
1- What is the direction of the slopes of supply and demand curve?
Supply curve: upward slope supply.
Demand curve: downward-sloping demand.
2- Why Substitution effect occurs?
Because a good becomes relatively more expensive when its price rises.
Chapter 19
Key Concepts of Macroeconomics:
Economic growth: is the process when advanced economies generally exhibit a steady
long-term growth in real GDP and improvement in living standards.
Healthy economy: is characterized as one with a high and steady level of economic
growth, a high level of employment and low unemployment, and stable.
GDP: is the measure of the market value of all final goods and services produced in a
country during a year.
Recession: is a period of significant decline in total output, income and employment.
Depression: is a severe and protracted downturn.
Unemployment rate: measures the percent of the labor force that is seeking work.
Employed: Individuals who would like to work full-time but are currently stuck in parttime jobs.
Price Stability: is defined as a low and stable inflation rate.
Price index: measures of the overall price level.
Consumer price index (CPI): measures the trend in the average price of goods and
services bought by consumers.
Inflation rate: is the percentage change in the overall level of prices from one year to the
next.
Policy instrument: is an economic variable under the control of government that can
affect one or more of the macroeconomic goals.
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Fiscal policy: refers to the use of taxation policy and government expenditures.
Government expenditures come in two distinct forms:
Government purchases: spending on goods and services.
Government transfer payments: which increase the incomes of targeted groups such as elderly
or the unemployed.
Taxation: affects the price of goods and factor of production. Taxes affect investment.
Monetary policy: is the tool that countries most often rely on to stabilize the business cycle. It
uses the nations supply of money, credit and banking system to determine short term interest
rates.
Aggregate Supply (AS): refers to the total quantity of goods and services that the nation’s
businesses willing to produce and sell in a certain period of time.
Aggregate demand (AD): refers to the total amount that different sectors in the economy
willingly spend on goods and services in a given period.
Questions:
1- What does macroeconomics examine?
It examines the overall level of a nation’s output, employment, and prices.
2- What does GDP stands for?
It stands for gross domestic product.
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