An introduction to the analysis of macroeconomics

Outside of macroeconomic theory, these topics are also important to all economic agents including workers, consumers, and producers. Output and income[ edit ] National output is the total amount of everything a country produces in a given period of time. Everything that is produced and sold generates an equal amount of income.

An introduction to the analysis of macroeconomics

An introduction to the analysis of macroeconomics

Each option represents the amount of food and clothing that our island economy can produce given full and efficient utilization of our available resources. In option A all available resources are dedicated to the production of clothing.

If we decide to produce some food we must give up some production of clothing. Options B through F represent progressively increasing output of food and decreasing output of clothing. Actually there are many more possible production combinations than indicated in the table. We can illustrate these many combinations with a graph of the production possibilities curve.

The Food-Clothing Production Possibilities Curve Production Possibilities Curve - a graph that indicates all the possible combinations of two goods or services or aggregates of goods and services that can be produced within an economy given the full and efficient use of all available resources.

The PPC represents all possible combinations of two goods or services that can be produced given available resources and technology. But this represents the undesirable situation of an underutilization of resources.

For example, if there is a higher than normal level of unemployment, then our economy is not producing at its full capacity. Underutilization of Resources Assumptions There are four assumptions that must be satisfied to construct a production possibilities curve: Only 2 goods or services or aggregates of goods or services are produced.

Full and efficient use of all available resources. Supplies of resources i. Technology is held constant. By satisfying these four assumptions, the production possibilities curve identifies all combinations of the maximum amount of any two goods or services that can be produced by a given economy.

Our first assumption that only 2 goods or services are produced allows us to illustrate our model as a graph with the output of one economic good plotted against the output of a second economic good. Of course there are many thousands of goods and services that are supplied in any economy.

We are not limited to analyzing the tradeoff between two specific goods.

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For example, we can plot the production of that one good against an aggregate measure of all other goods and services supplied in the economy. There are other aggregated combinations that reveal interesting tradeoffs such as all consumer goods versus all capital goods.

Our second assumption requires the full and efficient use of all available resources. As we noted above if resources are not fully utilized we are operating inside the PPC.

The application of the model with respect to opportunity cost and comparative advantage requires that we are operating at some point on the PPC. For example, if we have a situation of large scale unemployment and factories are sitting idle we can increase output with no opportunity cost to society.

In other words we can produce more of one good without requiring any sacrifice of production of the other good. Similarly, if resources are not efficiently used we could increase output of one good without sacrificing output of the other good.

You should recognize that this is not a model of economic growth. The application of the model with respect to opportunity cost and comparative advantage requires a stable PPC, i.

If there is an increase in the resources available e. If there is an improvement in technology we can also produce more or everything. Economic growth arising from an increase in productive capacity through an increase in resources or an improvement in technology implies the PPC shifts outward Figure Conversely, if there is a reduction in available resources e.

There is one distinction we should make. Generally we assume an increase in available resources raises the production capacity of both goods. An improvement in technology, however, may be specific to one product.

In this situation the PPC shifts outward only along one axis Figure The PPC slopes downward and to the right. This represents the opportunity cost of increasing the output of one good at the expense of the second good. An increase in food production requires a reduction in the production of clothing.

The slope of the PPC is negative at all points on the curve.Brief Contents PART I Introduction to Economics 1 1 The Scope and Method of Economics 1 2 The Economic Problem: Scarcity and Choice 25 3 Demand, Supply, and Market Equilibrium 47 4 Demand and Supply Applications 79 PART II Concepts and Problems in Macroeconomics 97 5 Introduction to Macroeconomics 97 6 Measuring National Output and National Income 7 Unemployment, .

Chapter 1 Introduction What is macroeconomics? Macroeconomics is the branch of economics which seeks to model the econ-omy as a whole. Like microeconomics, macroeconomics is a social science. TECON Understanding Economics (5) I&S, QSR Examines fundamental concepts of economic analysis with application to contemporary problems.

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Introduction to Macroeconomics - Measuring Output of the Macroeconomy

What is Microeconomics? Positive vs. Normative Analysis of the eBay Kidney Auction () Flash and JavaScript are required for this feature. This course introduces the principles of animation through a variety of animation techniques.

An introduction to the analysis of macroeconomics

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An Introduction to Macroeconomics