1. MacroEconomics

2. Economic Models Cause and Effect Inverse and Direct Relationships
2 or more variables
Independent variable vs dependent variable
Ie: price of cell phones vs # of cell phones purchased
Inverse and Direct Relationships
Inverse: one variable increase while the other decrease
Direct: one variable increases, the other will increase

3. 4 main economic systems
Traditional
Market
Command
Mixed

4. Benefits of Market Economy
In a market economy, individuals are free to pursue their own self interest
Consumer Sovereignty
Prices
Innovation

5. 1. Customer Sovereignty
Decisions of what to produce is ultimately guided by the needs and wants of households (as consumers)
Consumers use their dollars to “vote” on what types of goods and service should be produced
Ie: households wanting to switch some consumption dollars from Stereos to TVs
What will happen to the prices/demand/supply

6. Prices Prices at as an important signaling device in market economy
How? By coordinating activities of buyers and sellers to STOP either too much or too little of an item being produced
Higher TV prices provide businesses, lured by the chance to make higher profits, with an incentive to supply more TVs.
Meanwhile, the price drop for stereos causes businesses to cut their stereo production=> shifts in production results in changes in the employment of economic resources with more resouces being used to make TVs

7. Innovation
The incentive to make a profit in a market economy encourages innovation and entrepreneurship
Helps foster advances in technology
Improvements to existing products and introduction of new products

8. Disadvantages of Market Economy
Income Distribution
Without intervention by gov’t, the distrib of income in a market economy can create sig inequities
Market Problems
Private markers do not always operate in a way that benefits society as a whole
Negative external effects of economic activity (ie: pollution) may require intervention by gov’t to prevent harm to the society
Negative internal effects may also cause gov’t to step in (few companies control a product market thus depriving consumers of the advantages of competition)
Instability
Can display considerable instability in the total output produced from year to year
Affects employment levels (increase in employment when output needs to be increased; decrease in employment when output decreases)

9. Benefits of Command Economy
Income Distribution
Economic Growth

10. Drawbacks of Command Economy
Planning Difficulties
Inefficiencies
Lack of freedom

11. Economic Goals There are seven major economic goals:
economic efficiency
income equity
price stability
full employment
viable balance of payments
economic growth
environmental sustainability

12. Complementary Goals
Reaching one economic goal makes another goal easier to achieve
Ie: Full employment and Economic Growth (could they be directly correlated?)

13. Conflicting Goals Some economics goals conflict with each other
Attaining one goal makes another goal more difficulty to achieve
Ie: price stability vs full employment
Govt increase rate of inflation = restrain the level of production = raising unemployment
Income equity vs economic efficiency

14. Rise of Communism
“Let the ruling classes tremble at a communist revolution….Workingmen of all countries unite”

15. Carl Marx
Workers were exploited while entrepreneurs reaped all the profit
The working class should overthrow the rich and the powerful

16. Ideas People became became greedy with privatization
Private ownership of land led to the development of class systems

17. Communism Class division and competition will disappear and everyone
will be made equal and enjoy equal benefits
Worker exploitation will be eliminated
There is no ownership; everything belongs to the state and is to be shared by everyone
Society will be based on cooperation, not competition
The interests of individuals would be served best when the whole society benefited

18. Central Planning
Major production and consumption decisions are made by the government based on the goals of the nation
Central planners and help advance the economy much more quickly because all resources are used to achieve a nation’s objective

19. Example
In 1928, Stalin, the leader of the Soviet Union, instituted five years plans to increase the production of capital goods
The nation’s heavy industry capacity was expanded and grew to fourth in industrial output in the world

20. https://www.youtube.com/watch?v=fSQgCy_i Icc
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