Lecture 1: Introduction to macroeconomics
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Principles of
Macroeconomics
Dr.Do Xuan Luan
Faculty of economics and rural development (FERD), Thai Nguyen
University of Agriculture and Forestry (TUAF)
List of all lectures
1. Introduction to macroeconomics;
2. Gross Domestic Product (GDP);
3. Economic growth;
4. Unemployment
5. Inflation;
6. Aggregate Demand & Aggregate Supply (AS-AD model);
7. Expenditure decision and GDP
8. Fiscal Policy;
9. Monetary Policy;
10. Combined effects of monetary and fiscal policy;
11. Trading with the world;
Lecture 1. Introduction of macroeconomics & learning outcome
1.
Define economics and the features of the economic perspective.
Describe the role of economic theory in economics.
2.
Distinguish microeconomics from macroeconomics and positive
economics from normative economics.
3.
List the categories of scarce resources and delineate the nature of the
economizing problem.
4.
Differentiate between positive & normative economics; short-run &
long-run in economics.
Unit1:Introduction to Economics
1
Scarcity
2
Economic activity and
economics
3
Choice
4
The production Possibilities
Model
5
Opportunity costs
The economics perspective
• Scarcity
• Decision making
tool: comparing
costs and benefits
• Choice
1
2
4
3
• Purposeful
behavior
Resource scarcity
• Scarcity means that wants
always exceed the resources
available to satisfy them
– You can not always get
what you want.
– i.e: Government
expenditure on increasing
wage can reduce national
investment
Economic activity and economics
• Economic activity: is what
people do to cope with scarcity
•
Economics: Economics is the
study of how people use their
limited resources to try to satisfy
unlimited wants. (dismal
science)
Choice
• Faced with scarcity, people
must make choices
• we have to choose among
the available alternatives
• To make a choice, we
compare the benefits of
having more of one thing
against the costs
Purposeful Behavior
Economics assumes that human behavior reflects
“rational self-interest.” Individuals look for and pursue opportunities to
increase their utility
Purposeful in deciding:
- what goods and services to buy
- what products to produce and how to produce them
- what public services to provide and how to finance them
“Purposeful behavior” does not assume that people and institutions
are immune from faulty logic and therefore are perfect decision makers
Choice by government
Benefits
for
economy
Government
decision making tool
Costs for
economy
The role of economic theory in economics
Economists develop theories of the behavior of economy: i.e
how fiscal & monetary policy work?
Theories, principles, and models are “purposeful
simplifications.” i.e: the circular flow of goods & services,
the AS-AD model
Economic principles and models are highly useful in
analyzing behavior and understanding how
the economy operates.
Tradeoff by the choices of government
• Making choices in the face of
scarcity implies a cost
• What must be given up in
order to have something
(opportunity cost).
For example:
- Economic growth or
environmental pollution?
– Fish or steel?
– Unemployment or inflation?
Economics
Positive
economics
the economic of
what is… and
predicting:
i.e: inflation is a
continuous
increase in
average price
Normative
economics
judges.. is it
good or bad?
The economic
of what should
be?
i.e: Government
should control
inflation
Difference between macroeconomics and microeconomics
• Macroeconomics
• Microeconomics
deal with the performance,
structure, behavior, and
decision-making of an economy
as a whole.
deal with the behavior of
individual entities such as a
particular market, firms
consumers.
GDP, aggregate demand &
supply, economic growth,
average price, happiness,
inflation, unemployment, etc.
Revenue, cost, profit, price,
utility in consumption, elasticity,
supply and demand, labor
market, etc.
to determine an economy's
overall health, standard of living
to determine methods of
improvement for individual
business entities.
Time period in macroeconomics
Short-run v.s
Long-run
Short Run
Long Run
At least one resource
All resources (labor,
(labor, capital, land,
capital, land, production
production processes)
processes) can be all
are fixed or taken as
variable (i.e.
given
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changeable)
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Key point summary
1.
2.
3.
4.
5.
6.
Economics examines how individuals, institutions, and society make choices
under conditions of scarcity.
Economists categorize economic resources as land, labor, capital, and
technology
The economic perspective stresses (a) resource scarcity and
the necessity of making choices, (b) the assumption of purposeful (or
rational) behavior, and (c) comparisons of benefit and cost.
In choosing the best option, government incurs an tradeoff or opportunity
Economists use the scientific method to establish economic
theories—cause-effect generalizations about the economic
behavior of an economy.
Macroeconomics examines the economy as
a whole while microeconomics focuses on specific decision-making units of
the economy,
Positive economics deals with factual statements (“what is”);
normative economics involves value judgments (“what ought
to be”).
Assignment 1
1) Give an example of opportunity cost
2) Give an example to show the difference
between macroeconomics and
macroeconomics
3) Give an example to show the difference
between normative and positive economics;
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