Macroeconomics

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Introduction: What Is Economics?
Chapter Summary
Economics is about making choices when options are limited. Options in an economy are limited because the factors of production are limited. We can use economic analysis to understand the consequences of our choices as individuals, organizations, and society as a whole. Here are the main points of the chapter: • Most of modern economics is based on positive analysis, which answers the question “What is?” or “What will be?” Economists contribute to policy debates by conducting positive analyses about the consequences of alternative actions. • Normative analysis answers the question “What ought to be?” • The choices made by individuals, firms, and governments answer three questions: What products do we produce? How do we produce the products? Who consumes the products? • To think like economists, we (a) use assumptions to simplify, (b) use the notion of ceteris paribus to focus on the relationship between two variables, (c) think in marginal terms, and (d) assume that rational people respond to incentives. • We use macroeconomics to understand why economies grow, to understand economic fluctuations, and to make informed business decisions. • We use microeconomics to understand how markets work, to make personal and managerial decisions, and to evaluate the merits of public policies.

Learning Objectives
1. 2. 3. 4. 5. List the three key economic questions. Discuss the insights from economics for a real-world problem such as congestion. List the four elements of the economic way of thinking. List three ways to use macroeconomics. List three ways to use microeconomics.

1.1 What Is Economics?
Economics is the study of how people, businesses, governments, and other organizations make choices when there is scarcity. Scarcity means that the resources we use to produce goods and services are limited. Human wants,…...

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