1. Microeconomics examines the functioning of individual industries and the behavior of individual decision-making units. Macroeconomics is concerned with the sum, or aggregate, of these individual decisions—the consumption of all households in the economy, the amount of labor supplied and demanded by all individuals and firms, and the total amount of all goods and services produced.
MACROECONOMIC CONCERNS p. 410
2. The three topics of primary concern to macroeconomists are the growth rate of aggregate output; the level of unemployment; and increases in the overall price level, or inflation.
THE COMPONENTS OF THE MACROECONOMY p. 412
- 3. The circular flow diagram shows the flow of income received and payments made by the four groups in the economy—households, firms, the government, and the rest of the world. Everybody’s expenditure is someone else’s receipt—every transaction must have
- two sides.
4. Another way of looking at how households, firms, the government, and the rest of the world relate is to consider the markets in which they interact: the goods-and-services market, labor market, and money (financial) market.
5. Among the tools that the government has available for influencing the macroeconomy are fiscal policy (decisions on taxes and government spending) and monetary policy (control of the money supply, which affects interest rates).
A BRIEF HISTORY OF MACROECONOMICS p. 415
6. Macroeconomics was born out of the effort to explain the Great Depression of the 1930s. Since that time, the discipline has evolved, concerning itself with new issues as the problems facing the economy have changed. Through the late 1960s, it was believed that the government could “fine-tune” the economy to keep it running on an even keel at all times. The poor economic performance of the 1970s, however, showed that fine-tuning does not always work.
THE U.S. ECONOMY SINCE 1970 p. 417
7. Since 1970, the U.S. economy has seen five recessions and two periods of high inflation.