Summary Macro Economics II (Eco20B) _ 2nd year University Noteset
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Course
ECO20B (ECO20B)
Institution
STADIO (STADIO)
Book
How to Think and Reason in Macroeconomics
Looking for comprehensive study materials for your 2nd year Macro Economics course? Look no further than our Macro Economics II (Eco20B) 2nd year University Noteset! This set of notes covers all the important topics of the course, with colorful explanations that make complex economic theories easy ...
, BASIC ECONOMIC CONCEPTS & PRINCIPLES
WHAT IS ECONOMICS? ECONOMIC PROBLEM
social science that examines how individuals, households, and firms SCARCITY PROBLEM
satisfy their unlimited needs and wants with limited and scarce
resources to satisfy the unlimited wants and needs of society with the use of
limited resources
→ People only have a limited amount of money BUT many needs and
desires to satisfy
→ The government also has a limited amount of money and cannot
NEEDS WANTS satisfy all its desires
= goods and services ESSENTIAL for = human desires for goods and services
basic survival ECONOMIC SYSTEM [3 CENTRAL QUESTIONS]
Z fancy technology
Z Housing & Safety Z trendy clothes/attire 1. OUTPUT QUESTION
Z Food Z Treats (food and gifts)
Z Water → WHAT GOODS AND SERVICES WILL BE PRODUCED
AND IN WHAT QUANTITIES?
OPPORTUNITY COST
DEMAND 2. INPUT/INPUT QUESTION
= the loss of other alternatives when one
= occurs when consumers are able and alternative is chosen → HOW will each of the goods and services be
willing to buy a product at a certain price = loss of value/benefit that would have been
produced?
caused by participating in a certain activity → HOW MANY of the scarce resources will be used in
= desires become real demand
relative to an alternative activity that
the production of each good
provides a higher return in value or benefit
GOODS SERVICES
. MICROECONOMICS MACROECONOMICS → tangible objects [food, → intangibles [medical
clothing, houses] services, legal services,
→ individual decisions → functioning of the
financial services]
[consumers, producers, economy as a whole
importers, government, [unemployment, inflation,
exporters, companies] growth, and monetary and FREE GOODS ECONOMIC GOODS
fiscal policy] W not rare = no price [air, sunshine] W goods produced at a cost from
W freely available in unlimited scarce resources (scarce goods)
quantities W limited quantity available
W use value BUT NOT EXCHANGE W requires a price
VALUE W uses & exchange value
W offer out of control of people W offer is controllable
ECONOMIC PROBLEM W Wealth / prosperity = multipliable
in quantity
SCARCITY PROBLEM
FINAL GOODS INTERMEDIATE GOODS
to satisfy the unlimited wants and needs of society with the use of W goods used/consumed [bread] W goods purchased to be used as
limited resources inputs in the production of other
goods
ABSOLUTE SCARCITY
→ when we have enough resources to buy goods but it’s just not PRIVATE GOODS PUBLIC GOODS
W goods consumed by individuals & W use by community in general and
available
consumption by others are consumption by others not
excluded excluded
RELATIVE SCARCITY
CAPITAL GOODS CONSUMER GOODS
→ when there are enough goods to satisfy a population's needs but W goods not consumed, but used in W goods used for consumption by
most of the population is too poor to buy them [developing countries] the production of other goods individuals/households
HOMOGENEOUS GOODS HETEROGENEOUS GOODS
W goods exactly the same W differentiated goods available in
different varieties
, Macro-economic objectives + measures
5 Macro-economic objectives GDP Gross domestic product
[ measures economic growth ]
= total value of ALL FINAL goods and services produced within the
ECONOMIC GROWTH
boundaries of a country in a particular period
→ Measuring the increase of production of final goods & services [total
production of goods & service] (GDP) Elements Calculations
1. VALUE > prices used for value of production
FULL EMPLOYMENT 2. FINAL > avoid *double counting* 1. PRODUCTION METHOD
*** AVOID: [value added]
→ purpose of economic growth > create employment [aiming for low 2. EXPENDITURE METHOD
unemployment] (unemployment rate %) P V.A.T [G.V.A > gross value added]
[final goods & services]
P Consider ONLY the INCOMES earned
3. INCOME METHOD
PRICE STABILITY during the production process
[income of production factors]
P ULTIMATE USE > sales where goods /
→ objective of keeping inflation as LOW as possible [prices > accurate services reaches it’s final destination Value value of
reflection of how scarce a product is compared to other products] (inflation TOTAL
of intermediate
= Primary +
> CPI) total goods &
income
INTERMEDIATE GOODS [reseller] does NOT sales services
BALANCE OF PAYMENTS STABILITY form part of the GDP
Income of production factors
→ [EXTERNAL STABILITY] [salaries, profit etc.]
3. GEOGRAPHICAL : “domestic” > GDP includes
all the production within the geographical
→ balance of payments & exchange rates > transactions with the rest of the Value value of TOTAL
area of a country of intermediate
world (imports & exports) (current & financial account) 4. PERIOD > “during a particular period” > total
-
goods &
= PRIMARY
sales services INCOME
current production > usually one year
EQUITABLE DISTRIBUTION OF INCOME 5. FLOW > measured over a period of time
→ [SOCIALLY ACCEPTABLE] 6. GROSS > NO PROVISION for consumption
of fixed capital (depreciation > shows that *Output expressed in monetary terms
→ income (equitable needs) needs to be spread in such a way that people can portion of total output to be saved in must be EQUAL to the total
order to maintain production capacity monetary income derived from it
earn income in relation to their contribution > unequal distribution of
income = generates social & political conflict (Lorenz curve + Gini) level)
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