Macro Review

MACRO ECONOMICS REVIEW
1. Economics: the study of how people use there scares resources to satisfy their unlimited needs.
Opportunity cost: the next best alternative. (Relates with choice and scarcity)
The scarce resources are scarce because they are not unlimited.
2. Adam Smith was an economist that introduced the term of the invisible hand which refers to the markets beingself-regulated which no need of intervention of the government. He opposed the mercantilism system which was based in government regulations in the market, (mother system)
3. Demand Shifts:
* Money income of consumers.
* Raise in price in normal good (Right Shift)
* Raise in price on inferior good (Left Shift)
* Prices of related goods
* Substitute goods: increase in xgood (Right shift)
* Complementary good: increase in x good (Left shift)
* Number of composition of consumers: # of people that consumes
* Costumer Tastes
Movement along the curve means a change in the quantity demanded.
Quantity demanded varies inversely to price.
Supply Shifts
* State of technology. ( if better there is a shift to the Right)
* Price of relevantresources:
* A Price decrease there is a shift to the right.
* Price increases there is a shift to the left
* Producer expectation
* Change in number of producers (more producers left shift).
P and Q are directly related.
4. If the demand and supply curve shift at the same time the price and quantity demanded will be affected. Depending how the shifts occurs the price andquantity can or cannot be determined.
| D. Increase | D. Decrease |
S. Increase | P- undeterminedQ- raises | P- decreasesQ-undetermined |
S. Decrease | P- RaisesQ- undetermined | P- undeterminedQ- Decreases |

5. Normal profit: salary a person owns from its job. Earnings to keep you in business.
Economic Profit: Profits that lets a company be in competition and attract other business.Profits to continue with a company.
6. Functions of the government.
a. Allocation of public goods. (There are not where they are supposed to be )
b. Regulation ( crisis throwing all the markets down)
c. Redistribution (some markets have more than others)
d. Stabilization
7. Full employment: 5.5% of unemployment.
Price Stability: when there is inflationstability and the Consumer Price Index is taken in to account. Normal inflation is 2.5-2%
CPI: measures inflation based on cost of fixed market basket of goods and services.
Economic growth: is measured by the GDP (Gross Domestic Product) The increase in GDP means growth.
GDP: total market value (no underground economy) of all final goods and services (when sold to the consumer) produced in theeconomy at a given year by resources located in a certain country (USA).
* Nominal: P x Q
* Real GDP= nominal GDP Price index x 100
Business Cycle

Unemployment: Measured by the unemployment rate= # unemployedLabor force x 100
Under 16 or institutionalized do not count as part of the Labor Force.
Over 16: Retired, Students and Housewives.
Employed and Unemployed
Labor ForceParticipation Rate= #Labor force# Population
For women it rises over time. B>W
More women enter the labor force for 3 reasons
1. Cost of living
2. Rise of single parent home
3. Expansion of service sector.
Women’s wage is the opportunity cost of staying home.
8. Types of unemployment:
e. Frictional: Occurs because job seekers and employers need time to find each other.i. New enters: College and High School Students.
ii. Re-enters: women reentering in LF, and elderly recruited
f. Structural: Skills demanded by employers do not match those unemployed
iii. Discrimination, technological changes, geography.
g. Cyclical unemployment: it’s related to ups and downs of business cycle. Real unemployment.
h. Seasonal...