Download Introduction to Macroeconomic Section: ID: 201100724 Dr

Introduction to Macroeconomic
Section:
ID: 201100724
Dr. MOHAMMAD MAGABLEH
Abdulaziz Al-Omair
Introduction to Macroeconomics
Assignment#1
Concepts for review
Chapter#1
1- Scarcity: The distinguishing characteristic of an economic good. That an economic
good is scarce means not that it is rare but only that is not free available for the talking.
To obtain such a good, one must either produce it or offer the economic goods in
exchange.
Efficiency: Absence of waste, or the use of economic recourses that produces the
maximum level of satisfaction possible with the giving input and technology. For
example, a car that has a v6 engine and has a more power and less fuel emissions and
consumption than any car in its category.
2-Economic good: A good that is scarce relative to the total amount of it that is desired.
It must therefore be rationed, usually by charging a positive price. Although in
economic theory all goods are considered tangible, in reality certain classes of goods,
such as information, only are in intangible forms. For example, among other goods an
apple is a tangible object, while news belongs to an intangible class of goods and can be
perceived only by means of an instrument such as print, broadcast or computer.
Free good: Those goods that are not economic goods. Like air or sea water, hey exist in
such larger quantities that they need not be rationed out among those wishing to use
them. Thus, their market price is zero. A good that is made available at zero price is not
necessarily a free good. Examples include ideas and works that are reproducible at zero
cost, or almost zero cost. For example, if someone invents a new device, many people
could copy this invention, with no danger of this resource running out. Other examples
include computer programs and web pages.
3-Macroeconomics: it means dealing with the behavior of the economy as a whole with
the respect to output, income, the price level, foreign trade unemployment, and other
aggregate economic variables. Microeconomics: It means dealing with the behavior of
individual elements in an economy such as the determination of the price of a single
product or the behavior of a single consumer or business firm.
4-Normative vs. positive economics: normative part means what ought to be , value
judgments, or goals, of public policy. In the other hand, positive part means analysis of
facts and behavior in an economy. For example, The price of milk should be $6 a gallon
to give dairy farmers a higher living standard and to save the family farm.
This is a normative statement, because it reflects value judgments. This specific
statement makes the judgment that farmers need a higher living standard and that
family farms need to be saved.
5- Fallacy of composition: The fallacy of assuming that what holds for individuals also
holds for the other group or entire system. The fallacy of composition arises when one
infers that something is true of the whole from the fact that it is true of some part of the
whole. For example, This fragment of metal cannot be broken with a hammer, therefore
the machine of which it is a part cannot be broken with a hammer. This is clearly
fallacious, because many machines can be broken into their constituent parts without
any of those parts being breakable.
6-Laissez faire: The view that government should interface as little as possible in
economic activity and leave decisions to the marketplace. As expressed by classical
economics like Adam smith, this view held that the role of government should be
limited to maintenance of law and order, national defense, and provision of certain
public goods that private business would not undertake.
7-Mixed economy: The dominant of economic organization in noncommunist countries.
Mixed economics rely primarily on the price system for their economic organization but
use a variety of government interventions such as taxes, spending, regulation to handle
macroeconomic instability and market failures.
8- Inputs: Commodities or services used by firms in their production process, such as
labor, land, and capital; the resources needed to produce goods and services. Outputs:
The various useful goods or services that are either consumed or used in further
production.
9-Production possibility frontier: A graph showing the menu of goods that can be
produced by an economy. In a frequently cited case, the choice is reduced to two
goods, guns and butter. Points outside the PPF are unattainable. Points inside it are in
inefficient since resources are not being fully employed, resources are not being used
properly, or outdated production technique are being utilized.
10-Productivity efficiency: A situation in which an economy cannot produce more of one
good without producing more of one good without producing less of another good. A
more detailed theory of productivity is needed, which explains the phenomenon
productivity and makes it comprehensible. In order to obtain a measurable form of
productivity, operationalization of the concept is necessary. In explaining and
operationalizing a set of production models are used. A production model is a numerical
expression of the production process that is based on production data, i.e. measured
data in the form of prices and quantities of inputs and outputs.
11-Opportunity cost: The value of the best alternative use of an economic good. Thus,
say that the best alternative use of the inputs employed to mine a ton of coal was to
grow 10 bushels of wheat. the opportunity cost of a ton of coal is thus the 10 bushels of
wheat could have been produced but were not. Opportunity cost is particularly useful
for valuing non marketed goods such as environment health or safety.
Chapter#2
1-Market:An arrangement whereby buyers and sellers interact to determine the prices
and quantities of a commodity. Some markets take place in physical locations, other
markets are conducted over the telephone or are organized by computers, and some
markets now are organized on the internet.
2-Market equilibrium: The balancing of supply and demand in a market or economy
characterized by perfect competition. Because perfectly competitive sellers and buyers
individually have no power to influence the market, price will move to the point at
which it equal both marginal cost and marginal utility.
3-Perfect competition: Term applied to markets in which no firm or consumer is large
enough to affect the market price. This situation arises where 1- the number of sellers
and buyers is very large. 2- the products are offered by sellers are homogenous. Under
such conditions each firm faces a horizontal demand curve. Imperfect competition:
Term applied to markets in which perfect competition does not hold because at least
one seller is larger enough to affect the market price and therefore faces a downward
sloping demand curve. Imperfect competition refers to any kind of market imperfect.
4-Invisble hand: A concept introduced by Adam smith in 1776 to describe the paradox of
laissez-faire market economy. The invisible hand doctrine holds that, with each
participant pursuing his or her own private interest, a market system nevertheless
works to the benefit of all as though a benevolent invisible hand were directing the
whole process.
5-Division of labor: A method of organizing production whereby each worker specializes
in part of the productive process. Specialization of labor yields higher total output
because labor van become more skilled at a particular task because specialized
machinery can be introduced to perform more carefully defined subtasks.
6-Factors of production: Productive inputs, such as labor, land, and capital; the
resources needed to produce goods and services. Input determines the quantity of
output i.e. output depends upon input. Input is the starting point and output is the end
point of production process and such input-output relationship is called a production
function. All factors of production like land, labor, capital and technology are required in
combination at a time to produce a commodity. In economics, production means
creation or an addition of utility. Factors of production are any commodities or services
used to produce goods and services.
7-Property rights: Rights that define the ability of individuals or firms to own , buy, sell,
and use the capital goods and other property in a market economy. property right is the
exclusive authority to determine how a resource is used, whether that resource is
owned by government, collective bodies, or by individuals. Property rights can be
viewed as an attribute of an economic good. This attribute has four broad components
and is often referred to as a bundle of rights.
8-Efficiency: Absence of waste, or the use of economic resources that produces the
maximum level of satisfaction possible with the given inputs and technology.
9-Monopoly: A firm or industry whose average cost per unit of production falls sharply
over the entire range of its output, in local electricity distribution. Thus a single firm, a
monopoly, can supply the industry output more efficiency than can multiple firms.
Externalities: Activities that affect others for better or worse, without those paying or
being compensated for the activity. Externalities exist when private costs or benefits.
The two major species are external economies and external diseconomies.
10-Monetry policy: The objectives of the central banks in exercising its control over
money, interest rates, and credit conditions. The instruments of monetary policy are
primarily open-market operations, reserve requirements, and the discount rate.
Monetary policy rests on the relationship between the rates of interest in an economy,
that is, the price at which money can be borrowed, and the total supply of money.
Monetary policy uses a variety of tools to control one or both of these, to influence
outcomes like economic growth, inflation, exchange rates with other currencies and
unemployment. Where currency is under a monopoly of issuance, or where there is a
regulated system of issuing currency through banks which are tied to a central bank, the
monetary authority has the ability to alter the money supply and thus influence the
interest rate (to achieve policy goals). The beginning of monetary policy as such comes
from the late 19th century, where it was used to maintain the gold standard.
Chapter#3
1- Demand curve: A schedule or curve showing the quantity of a good that buyers would
purchase at each price, other things equal. Normally a demand curve has a price on the
vertical or y axis and quantity demanded on the horizontal or x axis. Demand curves are
used to estimate behaviors in competitive markets, and are often combined with supply
curves to estimate the equilibrium price, the price at which sellers together are willing
to sell the same amount as buyers together are willing to buy, also known as market
clearing price and the equilibrium quantity of that market.
2-Law of downward sloping demand: The nearly universal observation that when the
price of a commodity is raised, buyers but less of the commodity. Similarly, when the
price is lowered, other things being constant, quantity demanded increases.
3- Supply curve: A schedule showing the quantity of a good that suppliers in a given
market desire to sell at each price, holding other things equal. In addition, in graph the
change in the variable on the vertical axis per unit of change in the variable on the
horizontal axis. Upward sloping curves have negative slopes, and horizontal lines have
slopes of zero.
4-Equilbrium price: That position or level of output in which the firm is maximizing its
profit, subject to any constrains it may face, and therefore has no incentive to change its
output or price level. In the standard theory of the firm, this means that the firm has
chosen an output at which marginal revenue is just equal to marginal cost. For example,
in the standard text-book model of perfect competition, equilibrium occurs at the point
at which quantity demanded and quantity supplied are equal. Market equilibrium in this
case refers to a condition where a market price is established through competition such
that the amount of goods or services sought by buyers is equal to the amount of goods
or services produced by sellers. This price is often called the competitive price or market
clearing price and will tend not to change unless demand or supply changes.
5-Shifts of supply and demand curve: A graph the change in the variable on the vertical
axis per unit of change in the variable on the horizontal axis. Upward sloping curves
have negative slopes, and horizontal lines have slopes of zero.
6-Rationing by prices: By determining the equilibrium prices and quantities, the market
allocates or rations out the scarce goods of society among the possible uses. The
marketplace, through the interaction of supply and demand, does the rationing.
Chapter#4(20)
1-National accounts: A set of accounts that measures the spending, income, and output
of the entire nation for a quarter or a year. By construction such accounting makes the
totals on both sides of an account equal even though they each measure different
characteristics, for example production and the income from it. As a method, the
subject is termed national accounting or, more generally, social accounting. Stated
otherwise, national accounts as systems may be distinguished from the economic data
associated with those systems. While sharing many common principles with business
accounting, national accounts are based on economic concepts.
2-Nominal GDP: The market value of all final goods and services from a nation in a
given year. The GDP dollar estimates presented here are calculated at market or
government official exchange rates. Several economies which are not considered to be
countries are included in the lists because they appear in the sources. These economies
are not ranked in the charts here, but are listed where applicable. For example, Some
countries/regions may have citizens which are on average wealthy. These
countries/regions could appear in this list as having a small GDP. This would be because
the country/region listed has a small population, and therefore small total economy; the
GDP is calculated as the population times the wealth per capital.
Real GDP: Is a macroeconomic measure of the value of economic output adjusted for
price changes. This adjustment transforms the money-value measure, nominal GDP, into
an index for quantity of total output. Real GDP is an example of the distinction between
real vs. nominal values in economics. Nominal gross domestic product is defined as the
market value of all final goods and services produced in a geographical region, usually a
country. That market value depends on the quantities of goods and services produced,
and their respective prices.
3-GDP deflator: The price of GDP, the price index that measures the average price of the
components in GDP relative to a base year. GDP stands for gross domestic product, the
value of all final goods and services produced within that economy during a specified
period. For example, for computer hardware, we could define a "unit" to be a computer
with a specific level of processing power, memory, hard drive space and so on. A price
deflator of 200 means that the current-year price of this computing power is twice its
base-year price - price inflation. A price deflator of 50 means that the current-year price
is half the base year price - price deflation.
4-Net investment: Gross investment minus depreciation of capital goods. Net
investment is what an investment company receives in capital gains, dividends and
interest payments, less administrative fees. For example, let's assume Fund ABC is
reporting its performance results for the year. It has invested in a portfolio of growth
stocks, income stocks and corporate bonds. The growth stocks realized a capital gain of
$100,000, the income stocks realized a capital loss of $50,000 but also paid out $10,000
in dividends, and the corporate bonds maintained their value and paid out $20,000 in
interest. Fund ABC paid $5,000 in administrative fees.
5-Intrmidiate goods: Goods that have undergone some manufacturing or processing but
have not yet reached the stage of becoming final products. . Also, they are goods used
in production of final goods. A firm may make then use intermediate goods, or make
then sell, or buy then use them. In the production process, intermediate goods either
become part of the final product, or are changed beyond recognition in the process.
Intermediate goods are not counted in a country's GDP, as that would mean double
counting, as the final product only should be counted. For example, steel and cotton
yarn are intermediate goods.
6-Government transfers: is a redistribution of income in the market system. These
payments are considered to be exhaustive because they do not directly absorb
resources or create output. In other words, the transfer is made without any exchange
of goods or services. Examples of certain transfer payments include welfare, social
security, and government making subsidies for certain businesses.
7-Disposable income: Roughly, take home pay, or that part of the total national income
that is available to households for consumption or saving. More precisely, it is equal to
GDP less all taxes, business saving, and depreciation plus government and other transfer
payments and government interest payments.
8-Inflation: The inflation rate is the percentage of annual increase in a general price
level. Hyperinflation is inflation at extremely high rates, galloping inflation is a rate of 50
or 100 or 200 percent annually. Moderate inflation is a price-level rise that does ot
distort relative prices or incomes severely. In general, is a measure of inflation, or the
rate of increase of a price index such as the consumer price index. It is the percentage
rate of change in price level over time, usually one year. The rate of decrease in the
purchasing power of money is approximately equal.
Deflation: In economics, deflation is a decrease in the general price level of goods and
services. Deflation occurs when the inflation rate falls below 0%. This should not be
confused with disinflation, a slow-down in the inflation rate. Inflation reduces the real
value of money over time; conversely, deflation increases the real value of money – the
currency of a national or regional economy. This allows one to buy more goods with the
same amount of money over time.
9- Price index: An index number that shows how the average price of a bundle of goods
changes over time. In computation of the average, the prices of the different goods are
generally weighted by their economic importance by each commodity's share of total
consumer expenditures.
10-Growth rate: In group theory, the growth rate of a group with respect to a symmetric
generating set describes the size of balls in the group. Every element in the group can be
written as a product of generators, and the growth rate counts the number of elements
that can be written as a product of length n. For example, A finite group has constant
growth – polynomial growth of order 0 – and includes fundamental groups of manifolds
whose universal cover is compact.