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Macroeconomi cs

By: Stephanie Campbell 3rd Hour Final Textbook

1. What is macroeconomics?
To understand macroeconomics is it necessary to understand that microeconomics is the study of how an individual or firm makes its decisions. Macroeconomics in turn is the study of everyone and how their decisions affect the whole of the economy.

2. The Business Cycle

The above graph shows the business cycle and what each area represents.

The graph shows that the peaks are when the economy are at their est and highest point and the economy will egin to decrease. The trough is the lowest point the economy could e at and is also called a depression. To get to the trough the economy must go through a recession which is similar to that of a depression! ut on a much smaller scale. " recession can e known as a decrease in the real #$%! as well as a fall in inflation. To etter the economy it must go through a recovery which &o s and production increase again while! the #$% and inflation rise. The usiness cycle is a cycle and seems to work as recessions lasting 1' months every ( years since 1)*'. $uring recessions and some of the recovery there can e high unemployment in which there are two types of people+ those who are actually unemployed and looking for work! or those who have given looking up for a &o .

(. ,nflation vs. $eflation


,nflation is a rise in prices and can e calculated with the change in C%, over a period of time. C%, stands for consumer price inde-. .ne-pected inflation can hurt the economy. %rices for many consumer goods are dou le that of 2' years ago. When you hear your grandparents recall! /" movie and a ag of popcorn only cost 01.'' when , was your age!/ they are making an o servation a out inflation11 the cost of goods and services11over time.

$eflation is a fall in prices. ,f this happens une-pectedly this! too! can hurt the economy. " recent e-ample of deflation occurred during /The #reat 2ecession/ of 2''312''4! where the inflation rate fell elow '5. "n e-treme e-ample of deflation occurred during The #reat $epression.

6. Banking 7ystem
The anking system of the .7 is acked y the the 8ederal 2eserves. The 89$s keep a certain amount of money in their vaults! as do the anks! for loans. The 89$ is the ank for the anks and it loans money to the anks to keep in their vaults when the anks themselves loan money to their customers. ,t is a cycle of money eing transferred etween the 89$s! anks! and customers. The Bathtu Theory of economics involves the 89$s and the government. 9ach one is on either side of the athtu e with their own faucet. When they open them the tu fills and money goes into the economy. When there is too much money in the economy either side will drain the tu and take money out of the economy. They have the a ility to keep the economy sta le. :ot only do the 89$s loan! ut they also produce the money. Money is a measure of time spent working. Money is a form of trade in the economy.

*. Ta-es
When considering ta-es! it is important to understand the difference etween marginal and average ta- rates. Marginal rates refer to the ta- rate in effect on the last dollar earned! while the average ta- rate is the product of total ta-es paid divided y total ta-a le income. There are three ma&or types of ta-es in the ..7. ta- system. %rogressive ta-es result in higher average rates as income increases; personal income ta- is a common e-ample. 2egressive ta-es result in lower average ta- rates as income falls; sales ta- is commonly used as an e-ample. %roportional ta-es maintain a constant rate irrespective of income. Ta-es are what run the government and fund pro&ects and keeping the country a safe and healthy place.

<. Collectivism vs. ,ndividualism

,ndividualism is the political or economically elief in individuality. 9veryone is there entitled to their eliefs and rights. 9veryone has the right to follow their dreams. %eople should e independent and take care of themselves. %eople are entitled to their thoughts and ideas without &udgment from others. ,ndividualism values independence and self1 sufficiency to make decisions that are est for the individual. Collectivism is the idea that everyone is e=ual. %eople work together to make everything the same for everyone. The group of people are interdependent on each other and work to make everything the est for the group and not the individuals. Collectivism values e=uality and putting a groups importance over that of the individuals.

3. ,nternational Trade
,nternational trade is trade with countries around the world. >aving international trade can e eneficial to oth parties! especially if one of them is a poor or underdeveloped country. Through trade they could import things that increase the economy?s productivity. The e-porting country could e-port a usiness which would make the company@s la or cheaper. More people would e a le to afford their product and all around their production would increase. The importing country would then e creating &o s for the people! no matter the conditions. This would then improve the lives all the people involved.

4. 9-change 2ates

9-change rates are the how much money is worth in different countries. 9-change rates are determined y the supply and demand of currency. ,f the ..7. dollar is in high demand in one country then the price of the ..7. dollar will e increased in relation to that other countries money. 9-change rates can always increase or decrease. ,n trade the e-change rate can affect the amounts of e-ports and imports from different countries. When a country?s currency is considered strong they are more prone to import and then opposite for e-porters. "n e-port would prefer a weak dollar.

This is an example of exchanges rates in the US.

). #$%
#ross $omestic %roduct. This means the market value of all goods and services. There are two types of #$%! real and nominal. 2eal #$% is an inflation ad&ustment ased on the values of all goods and services in a year. :ominal! in turn! is not affected y inflation or deflation. #$% can e calculated consuming1<35 of economyAgovernmentAinvestmentsBinventory Anet e-ports.

1'. Credit
Credit is a three digit num er that that can determine how much money you can get in a loan! or if you will even get a loan. This num er is determined y how on time and well you have payed off past loans. :ot paying off or on time to prior loans can give a person ack credit which is hard to make good again! ecause people are less likely to give loans. This could also increase the interest of a loan making it harder for a person to e a le to pay off.

11. 8iscal %olicy versus Monetary %olicy


8iscal policy is a spending policy that affects ta- rates! interest rates! and government spending to control the economy. Monetary policy is the actions of the central ank that regulates and determines the siCe and the rate growth of the money supply that then affects interest rates. Monetary policy is maintained y increasing rates or changing the amount need to keep in ank vaults.

12. Deynes vs. >ayek

The Deynesian idea is that there is a circular flow of income and e-penditures! which shows an inherently unsta le market economy. Deynes idea is that the economy moves in a circular motion from full1 employment to a deep depression and ack again. Deynes elieves that the economy needs a proactive fiscal policy. The >ayekian vision is that the market rate of interest is in line with that of people@s saving and keeps a sustaina le economy growth.

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