Macroeconomics- Deals with the economy as a whole.

Aggregate behavior- the behavior of all households and firms together. Sticky Prices- prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded. y Both macroeconomics and microeconomics are concerned with the decisions of households and firms.

3 major concerns of macroeconomics- output growth, unemployment, inflation and deflation. y For economists, the main measure of how an economy is doing is aggregate output.

The business cycle is the cycle of short-term ups and downs in the economy. An expansion or boom in the cycle is from a trough up to a peak during which output and employment grow. Contraction, recession, or slump is the period in the cycle from a peak down to a trough during which output and employment fall. Aggregate output- the total quantity of goods and services produced in an economy in a given period. A recession is a period during which aggregate output declines. Conventionally, a period in which aggregate output declines for two consecutive quarters. Depression- a prolonged economic recession. Unemployment rate- the percentage of the labor force that is employed. Inflation is an increase in the overall price. Hyperinflation- quick increase on inflation Macroeconics focuses on four groups- households, firms, the government, and the rest of the world!! Circular flow- a diagram showing the income received and payments made by each sector of the economy. Transfer payments- cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments. Include social security benefits, veteran benefits, and welfare benefits. Markets divided into 3 broad arenas- the goods-and-services market, the labor market, and the money (financial) market. Treasury bonds, notes, and bills- promissory notes issued by the federal government when it borrows money. Corporate Bonds- Promissory notes issued by firms when they borrow money.

Government policies concerning taxes and spending. Savings is a leakage of the flow of money from the households part.Shares of stock. Dividends.The total cost to society of producing an additional unit of a good or service. Fiscal Policy. which in turn affects interest rates. Savings are put in the banks and banks can create an injection of money to the firms. The government can also transfer payments back to the households such as children.the portion of a firm s profits that the firm pays out each period to its shareholders. and the money ends up at households. MSC is equal to the sum of the marginal costs of producing the product and the correctly measured damage costs involved in the process of production. . Households produce labor which goes back to the firms and firms create product flow that goes to the households. (Marginal (private) cost= MC) (Marginal damage cost= MDC) (MC + MDC= Marginal Social Cost (MSC).A cost or benefit imposed or bestowed on an individual or a group that is outside. etc. the transaction. poor people. Firms also give taxes to the government. Rest of the world receives payments for imports from the households that receive product flow imports. Reserve to control the quantity of money.Financial instruments that give to the holder a share in the firm s ownership and therefore the right to share in a firm s profits. pays the expenses. The government then can take taxes from households and use that money to spend on firms and businesses. Payments for the services and goods by the households go to the firms. disabled soldiers. Rest of the world pays the firms for the product flow of exports that it receives. Monetary policy. or external to. Externality. Market failure occurs when resources are misallocated or allocated inefficiently. Great DepressionFine-tuning. StagflationGross Domestic Product= C+I+G+X-M Maturity date-> 10 years+ (long term)= Bond 1-10 years= Notes Less than and up to a year (short term)= Bills Money starts at firms. Internalizing external costMarginal Social Cost (MSC).the phrase used by Walter Heller to refer to the government s role in regulating inflation and unemployment.the tools used by the FED.

While each is best suited for a different set of circumstances. from an economic perspective there are problems with positive externalities.A problem intrinsic to public goods: The good or service is usually so costly that its provision generally does not depend on whether any single person pays. The problem with positive externalities is that the individuals in charge have too little incentive to engage in activity. 2.The amount that a consumer pays to consume an additional unit of a particular good. 4.Goods that are nonrival in consumption and/or their benefits are nonexcludable. Nonexcludable. Sale or auctioning of rights to impose externalities. and 5. Public goods (social or collective goods). Drop-in-the-bucket problem. Government imposed taxes and subsidies. However. Direct government regulation.The additional harm done Five approaches to solving the problem of externalities: 1. all five provide decision makers with an incentive to weigh the external effects of their decisions.A problem intrinsic to public goods: Because people can enjoy the benefits of public goods whether or not they pay for them.a characteristic of public goods: one person s enjoyment of the benefits of a public good does not interfere with another s consumption of it. Marginal Damage Cost (MDC). no one can be excluded from enjoying its benefits. Private bargaining and negotiation. Legal rules and procedures.a characteristic of most public goods: Once a good is produced. Characteristics of public goods: Nonrival in consumption. Free-rider problem. 3.Positive externalities are side benefits from the activities engaged by other people or firms. they are usually unwilling to pay for them. . Marginal Private Cost(MPC).

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