Macro Economics Chapter 01 Power Point

Question 2

What will you learn in this chapter?

Answer 2

You will be acquaintedwith the foundation of the economic way of thinking

Question 3

What is the economic way of thinking?

Answer 3

A logical framework for organizing your thoughts and understanding economics

Question 4

What are some examples?

Answer 4

• Can you prove there is no person worth a trillion dollars?• Why would you purchase more Coca-Cola when the price increases?• How can you explain the relationship between the Super Bowl winner and changes in the stock market?

Question 5

What are the 3 building blocks in the economicway of thinking?

Answer 5

1.scarcity & choice2.model building3.pitfalls of economic reasoning

Question 6

What is the economic problem?

Answer 6

• Providing for people’s wants and needs in a world of scarcity.

Question 7

What is meant by scarcity?

Answer 7

• The condition in which wants are forever greater than the available supply of time, goods, and resources.

Question 8

What does scarcity force us to do?

Answer 8

• It forces us to make choices.

Question 9

What are resources?

Answer 9

• The basic categories of inputs used to produce goods and services.

Question 10

What are the three categories of resources?

Answer 10

1.Land 2.Labor 3.Capital

Question 11

What is a land resource?

Answer 11

• A shorthand expression for any natural resource provided by nature.

Question 12

What is labor?

Answer 12

• The mental and physical capacity of workers to produce goods and services.

Question 13

What is capital?

Answer 13

The physical plants, machinery, and equipment used to produce other goods, They do not directly satisfy human wants.

Question 14

What is financial capital?

Answer 14

• The money used to purchase capital. Financial capital by itself is not productive, it is a paper claim on capital.

Question 15

What is entrepreneurship?

Answer 15

• Creative labor of individuals that enables them to seek profits by combining resources. Entrepreneurship organizes resources to produce goods and services. Land, Labor, and Capital.

Question 16

What is economics?

Answer 16

• The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants and needs.

Question 17

What is macroeconomics?

Answer 17

• The branch of economics that studies decision-making for the economy as a whole.

Question 18

What is an economic model?

Answer 18

• A simplified description of reality used to understand and predict the relationships between variables.

Question 19

What is the purpose of an economic model?

Answer 19

• To forecast or predict the results of various changes in variables

Question 20

What is the scientific method?

Answer 20

• Problem identification• Model development• Testing a theory

Question 21

Define the scientific method of an economic model.

Answer 21

Identify the problem. Develop a model based on simplified assumptions.Test the model and formulate a conclusion.

Question 22

What conclusion can we make from a scientific, economic model?

Answer 22

• If the evidence supports the model, the conclusion is to accept the model. If not, the model is rejected.

Question 23

What assumption (rule) is always made when testing a model?

Answer 23

ceteris paribus - Latin phrase that translates approximately to “holding other things constant” and is usually rendered in English as “all other things being equal”. In economics and finance, the term is used as a shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable.

Question 24

What is an example of ceteris paribus?

Answer 24

• If the price of new Ford cars decrease, and everything else stays the same, consumers will buy more, but if other variables change, we cannot make a prediction.

Question 25

What is the difference between association and causation?

Answer 25

• We cannot always assume that when one event follows another, the first caused the second.

Question 26

What are the two common pitfalls in understanding how the economy works?

Answer 26

1.failing to understand the ceteris paribus assumption.2.confusing association with causation.

Question 27

What conclusion can we make about the pitfalls in understanding how the economy works?

Answer 27

A theory cannot be tested legitimately unless its ceteris paribus assumption is satisfied.

Question 28

Why do economists forecasts differ?

Answer 28

• Because using the same methodology, economists can agree that event A causes event B, but disagree over the assumption that event A will occur.

Question 29

Why do some economists disagree?

Answer 29

• The answer lies in understanding the difference between positive and normative economics.

Question 30

What is positive economics?

Answer 30

• An analysis limited to statements that are verifiable.

Question 31

What is normative economics?

Answer 31

• An analysis based on value judgement.