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ECONOMIC SCIENCE: The application of the scientific method to economic phenomena. In other words, economists develop theories, test hypotheses, and seek to explain things like prices, unemployment rates, monopolize markets, business cycles, market shortages, and virtually everything else that might be considered economic "stuff." However, economic science is also directed toward phenomenon that might NOT be considered economics, including voting, crime, and leisure. The key element, however, is that all of these, and many more, phenomena related to the fundamental problem of scarcity in one way or the other.
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Lesson 9: Macro Basics | Unit 1: The Macroeconomy
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Page: 3 of 16
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- The basic definition of an economy, which is an interactive system of production, distribution, and consumption of resources, goods and services.
- The four macroeconomic sectors of and their expenditures on total production: (a) the household sector and consumption, (b) the business sector and investment, (c) the government sector and government purchases, and (d) the foreign sector and net exports.
- The primary economic functions of the household sector, which is consumption, the business sector, which is production, and the government sector, which is regulating economic activity.
- The difference between microeconomics, the study of the parts of the economy, and macroeconomics, the study of the aggregate economy.
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ASSUMPTIONS, CLASSICAL ECONOMICS Classical economics, especially as directed toward macroeconomics, relies on three key assumptions--flexible prices, Say's law, and saving-investment equality. Flexible prices ensure that markets adjust to equilibrium and eliminate shortages and surpluses. Say's law states that supply creates its own demand and means that enough income is generated by production to purchase the resulting production. The saving-investment equality ensures that any income leaked from consumption into saving is replaced by an equal amount of investment. Although of questionable realism, these three assumptions imply that the economy would operate at full employment.
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BROWN PRAGMATOX
[What's This?]
Today, you are likely to spend a great deal of time strolling around a discount warehouse buying club seeking to buy either a rechargeable battery for your computer or shoe laces for your snow boots. Be on the lookout for jovial bank tellers.
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Two and a half gallons of oil are needed to produce one automobile tire.
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"Do something wonderful; people may imitate it. " -- Albert Schweitzer, theologian, physician
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CBA
Cost Benefit Analysis
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