Introduction to Macroeconomics

Chapter 1. An Overview of Macroeconomic

s

Introduction to Macroeconomics
An Overview of Macroeconomics

1. What is Macroeconomics

2. Macroeconomic Goals

3. Key Principles of Economics

Introduction to Macroeconomics
1. What Is Macroeconomics?

• Microeconomics - study of behavior of in

dividual economic agents.

• Macroeconomics - study of aggregate m

easures of the economy

Introduction to Macroeconomics
2. Macroeconomic Goals

• Low Unemployment
• Price Stability
• Economic Growth
• Complementary and Conflicting Goals

Introduction to Macroeconomics
2. Macroeconomic Goals
Complementary and Conflicting Goals

• Complementary Goals
– Low unemployment and high economic
growth

• Conflicting Goals
– Low unemployment and low inflation

Introduction to Macroeconomics
3. Key Principles of Economics

• Scarcity, Choice, and Opportunity Cost

• Rational Self-Interest

• Relationship Between Opportunity Cost

and Rational Self-Interest

• Decisions Are Made at the Margin

Introduction to Macroeconomics
3. Key Principles of Economics
Scarcity, Choice, and Opportunity Cost

The Production Process

Inputs Outputs
• Nonhuman Resourc • Goods
es • Services
– Natural Resources
– Real Capital
• Human Resources

Introduction to Macroeconomics
3. Key Principles of Economics
Scarcity, Choice, and Opportunity Cost

• Limited Resources
• Unlimited Wants
• Scarcity - resources, goods and services a
re limited relative to the wants and desires f
or them
• Choice
• Opportunity Cost - the highest valued alte
rnative foregone in making any choice

Introduction to Macroeconomics
 3. Key Principles of Economics
Rational Self-Interest
• Rational
– Individuals are able to estimate benefits and costs
(net benefit) of a particular action
– They are able to compare the net benefits of altern
ative actions

• Self-Interest
– Only engage in that activity if the net benefit is grea
ter than zero
– Engage in the activity that yields the greatest net b
enefit

Introduction to Macroeconomics
3. Key Principles of Economics
Decisions Are Made at the Margin

• Marginal Benefit
– the increase in total benefit from the production
or consumption of one additional unit of a good
or service

• Marginal Cost
– the increase in total cost from the production or
consumption of one additional unit of a good or
service

Introduction to Macroeconomics