Principles of MacroEconomics an der ETHZ - ETH Zurich

Karteikarten und Zusammenfassungen für Principles of MacroEconomics an der ETHZ - ETH Zurich

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Lerne jetzt mit Karteikarten und Zusammenfassungen für den Kurs Principles of MacroEconomics an der ETHZ - ETH Zurich.

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Which for principles are there on how people make decisions?

Beispielhafte Karteikarten für Principles of MacroEconomics an der ETHZ - ETH Zurich auf StudySmarter:

Efficiency vs Equity is often talked about when talking about principle one - what does it mean?

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Opportunity Cost definition formally

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Which are the three principles of how people interact?

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Which are the three principles that deal with how the economy as a whole works? 

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What is a capitalistic economic system?

Critics?

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What is planned economic system?

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Micro vs Macro?

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Inductive vs Deductive reasoning?

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Models are used to simplify reality in order to improve our understanding of the world. A model contains two different types of variables:


Put this in cause effect terms!

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When economists are trying to explain the world,

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When economists are trying to change the world,

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Beispielhafte Karteikarten für Principles of MacroEconomics an der ETHZ - ETH Zurich auf StudySmarter:

Principles of MacroEconomics

Which for principles are there on how people make decisions?

1.People face trade-offs: “There is no such thing as free lunch!”. To get one thing, we usually have to give up another thing. For instance, efficiency (society gets the most that it can from its scarce resources) vs. equity (the benefits of those resources are distrib- uted fairly). Optimization problem.


2. The cost of something is what you give up to get it: The opportunity cost of an item is what you give up to obtain that item.



3. Rational people (economic agent) think at the margin: People make decisions by comparing costs and benefits at the margin. Marginal changes are small, incremental adjustments to an exist- ing plan of action.



4. People respond to incentives: Marginal changes in costs or benefits motivate people to respond.


The decision to choose one alternative over another occurs when that alternative’s marginal benefits

exceed its marginal costs!

• Public policies can create incentives or disincentives that alter behaviour

• Sometimes policymakers fail to understand how policies alter incentives and behaviour (example in India with snakes) 

Principles of MacroEconomics

Efficiency vs Equity is often talked about when talking about principle one - what does it mean?

 Efficiency means society gets the most that it can from its scarce resources


 Equity means the benefits of those resources are distributed fairly among the members of society

Principles of MacroEconomics

Opportunity Cost definition formally

The opportunity cost of an item is what you give up to obtain that item


 It is a ratio expressed as the sacrifice in one good in terms of the gain in the other

Principles of MacroEconomics

Which are the three principles of how people interact?


5. Trade can make everyone better off: Trade allows people to specialize in what they do best and competition results in gains from trading. 


6. Markets are usually a good way to organize economic activity: In a market econ- omy, firms and households interact in markets for goods and services. Adam Smith ob- served that households and firms interact in the market as if they are guided by an “in- visible hand”. Because they look at prices when deciding what to buy and sell, they un- knowingly take into account the social costs of their action and as a result, prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole. 


7. Governments can sometimes improve market outcomes: Markets only work if prop- erty rights are enforced. Market failure occurs when the market fails to allocate re- sources efficiently. It can be caused by an externality (the impact of one person / firm’s actions on the well-being of a bystander) or market power (the ability of a single person or firm to overly influence market prices).



Principles of MacroEconomics

Which are the three principles that deal with how the economy as a whole works? 

8. A country’s standard of living depends on its ability to produce goods and ser- vices: Almost all variations in living standards are explained by differences in countries’ productivities where productivity is the amount of goods and services that are produced from each hour of a worker’s time. 


• Economic growth - the increase in the amount of goods and services in an economy over a period of

time.


• Gross domestic product per head - the market value of all final goods and services produced within a

country in a given period of time divided by the population of a country to give a per capita figure


• Standard of living may be measured in different ways:


 By comparing (inflation adjusted) personal incomes


 By comparing the total market value of a nation’s production


• Productivity is the amount of goods and services produced from each hour of a worker’s time


9. Prices rise when the government prints too much money: One cause of inflation is the growth in the quantity of money. 


 Too high and too low inflation imposes various costs on society


10. Society faces a short-run trade-off between inflation and unemployment: The Phil- lips Curve illustrates that when inflation goes down, unemployment goes up (in the short- run!).


The trade-off plays a key role in the analysis of the business cycle


– fluctuations in economic activity,


such as employment and production


Principles of MacroEconomics

What is a capitalistic economic system?

Critics?

  • A capitalist economic system incorporates the principles of the private ownership of factors of

production to produce goods and services which are exchanged through a price mechanism and

where production is operated primarily for profit


  • Critics of the capitalist system argue that they are inherently unstable and lurch from boom-to-bust
  • and that owners of the factors of production are too powerful and can distort resource allocation

Principles of MacroEconomics

What is planned economic system?

A planned economic system is when economic activity organized by central planners who decide the

answers to the fundamental economic questions


Most countries that once had centrally planned economies have abandoned this system and are

developing more market-based economies

Principles of MacroEconomics

Micro vs Macro?

 Microeconomics focuses on the individual parts of the economy. How households and firms make decisions

and how they interact in specific markets


 Macroeconomics looks at the economy as a whole. Economy-wide phenomena, including inflation, unemployment, and economic growth


 Changes in the overall economy arise from the decisions of millions of individuals,

so macroeconomics and microeconomics are linked

Principles of MacroEconomics

Inductive vs Deductive reasoning?

• Inductive reasoning: The process of observation from which patterns might be formed that provide evidence for a hypothesis which may lead to a theory. 


• Deductive reasoning: Begins with a theory from which a hypothesis is drawn that is then subject to observation and either confirmation or rejection.

Principles of MacroEconomics

Models are used to simplify reality in order to improve our understanding of the world. A model contains two different types of variables:


Put this in cause effect terms!

• Endogenous variables: A variable whose value is determined within the model. 


• Exogenous variables: A variable whose value is determined outside the model.

Principles of MacroEconomics

When economists are trying to explain the world,

They are scientists

Principles of MacroEconomics

When economists are trying to change the world,

They policy advisors


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