Economics Lecture Notes

Overview of Economics

Economics is the study of decision-making in the face of scarcity.
It involves the allocation of limited resources to satisfy unlimited wants and needs.
Two main branches:
- Microeconomics
- Macroeconomics

Focus: Actions of individual agents within the economy.
- Examples include consumers, households, workers, and businesses.
The prefix 'micro' means small.
Microeconomics looks at how these agents behave within an economy.
Example: A business acquiring new clients and increasing its spending is a microeconomic issue as it pertains to individual businesses.

Focus: The economy as a whole.
- Deals with broad issues such as unemployment, GDP, inflation, interest rates, government deficits, monetary policy, and fiscal policy.
The prefix 'macro' means big or large.
It is used to measure the overall economy, important for detecting economic conditions like recessions or rapid expansions.

Monetary Policy
- Managed by the Federal Reserve.
- Adjusts interest rates to influence bank lending.
- Lower interest rates make loans more attractive, encouraging investment and stimulating economic growth.
Fiscal Policy
- Managed by the government.
- Can involve decreasing taxes to increase disposable income and stimulate spending and investment.
- Increasing government spending can also stimulate the economy by creating jobs and increasing business profitability.

Example: Inflation affecting all prices and reducing consumer demand is a macroeconomic issue, impacting the economy as a whole.

Microeconomics: Focuses on individual segments of the economy.
Macroeconomics: Focuses on the broader economic picture.
Remember:
- Micro = Small (individual actors)
- Macro = Large (economy-wide issues)

Microeconomics and macroeconomics, while interdependent, focus on different aspects of economics.
Understanding their differences helps in analyzing economic problems and their solutions.