Summary Macro Economics

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Contents
Chapter 1 : Foundations and Models9
Three Key Economic Ideas9
The Economic Problem that Every Society Must Solve9
Centrally Planned Economy Vs. Market Economies9
The Modern “Mixed” Economy10
Indices of Economic Freedom10
-Index of Economic Freedom (IEF)10
-Economic Freedom of the World ( EFW)10
Economic Data10
Efficiency and Equity10
Economic Models11
The Role Of Assumptions In Economic Models11
Forming & Testing Hypotheses in Economic Models11
Normative and Positive Analysis11
Microeconomics and Macroeconomics11
Preview of Important Economic Terms11
Chapter Two : Trade Offs, Comparative Advantage and the Market System12
Production Possibilities Frontiers and Opportunity Costs12
Increasing Marginal Opportunity Costs12
Economic Growth12
Comparative Advantage and Trade13
Specialisation and Gains from Trade13
Absolute Advantage versus Comparative Advantage13
The Ricardian Model13
The Market System13
Factors of Production13
The Circular Flow of Income13
The Gains from Free Markets14
The Market Mechanism14
The Role of the Entrepreneur14
The Legal Basis of a Successful Market System14
Enforcement of Contracts and Property Rights15
Chapter 3: The Interaction of Demand and Supply15
The Demand Side of the Market15
Demand Schedules and Demand Curves15
The Law of Demand15
Ceteris Paribus condition15
Variables that Shift Market Demand15
A Change in Demand versus a Change in Quantity Demanded16
The Supply Side of the Market16
Supply Schedules and Supply Curves16
The Law of Supply16
Variable that Shift Market Supply17
A Change in Supply Versus A Change in Quantity Supplied.17
Market Equilibrium17
How Market Eliminate Surpluses and Shortages17
The Effect of Demand and Supply Shifts on Equilibrium18
The Effect of Shifts in Supply on Equilibrium18
The Effect of Shits in Demand on Equilibrium18
The effect of shits in Demand and Supply over time.18
Shifts in a Curve versus Movement Along a Curve18
Chapter 5: Firms, the Stock Market, and Corporate Governance18
How do Firms Raise Funds?18
Sources of External Funds19
Stock and Bond Markets Provide Capital -- and Information.19
Financial System= bonds and stock markets20
Crises20
Chapter 6: Comparative Advantage and the Gains from International Trade20
The United States in the International Economy20
The importance of trade to the US Economy20
Comparative Advantage in International Trade20
How do Countries Gain from International Trade20
Increasing Consumption through Trade21
Why don’t we see complete specialisation?21
Does Anyone Lose as A Result of International Trade?21
Where does Comparative Advantage come from?21
Comparative Advantage Over Time: the Rise and Fall of the U.S Consumer Electronics Industry22
Government Policies that Restrict International Trade22
Tariffs22
Quotas and Voluntary Export Restraints23
The High Cost of Preserving Jobs with Tariffs and Quotas23
Gains from Unilateral Elimination of Tariffs and Quotas.23
Other Barriers to Trade.23
The Arguments over Trade Policies and Globalisation24
Opposition to Globalisation24
Anti- Globalisation24
“Old Fashioned” Protectionism24
Dumping24
Positive versus Normative Analysis24
Chapter 7: GDP25
Gross Domestic Product Measures Total Production25
Measuring Total Production: GDP25
Production, Income , and the Circular – Flow Diagram25
Components of GDP26
Equation for GDP26
Measuring GDP using the Value Added Method26
Does GDP Measure What We Want it to Measure?26
Short comings in GDP as a Measure of Total Production27
Short comings of GDP as a Measure of Well- being27
Real GDP versus Nominal GDP27
Calculating Real GDP27
Comparing Real GDP and Nominal GDP27
The GDP Deflator28
Chapter 8: Unemployment and Inflation28
Measuring the Unemployment Rate...
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