Economics is the science that studies how people and societies make decisions that allow them to get the most out of their limited resources. Because every country, every business, and every person deals with constraints and limitations, economics is literally everywhere. This Cheat Sheet gives you some of the basic essential information about economics.
the Big Definitions in Economics
When studying any subject, a key first step is to learn the lingo. Here are definitions for three of the most important words in economics: Economics studies how people allocate resources among alternative uses. The reason people have to make choices is scarcity, the fact that we don’t have enough resources to satisfy all our wants. Microeconomics studies the maximizing behaviour of individual people and individual firms. Economists assume that people work toward maximizing their utility, or happiness, while firms act to maximize profits. Macroeconomics studies national economies, concentrating on economic growth and how to prevent and ameliorate recessions
Macroeconomics and Government Policy
Economists use gross domestic product (GDP) to keep track of how an economy is doing. GDP measures the value of all final goods and services produced in an economy in a given period of time, usually a quarter or a year. A recession occurs when GDP is decreasing. An expansion occurs when GDP is increasing. The unemployment rate measures what fraction of the labour force cannot find jobs. The unemployment rate rises during recessions and falls during expansions. Anti-recessionary economic policies come in two flavours:
Monetary policy uses an increase in the money supply to lower interest rates. Lower interest rates make loans for cars, homes, and investment goods cheaper, which means consumption spending by households and investment spending by businesses increase. Fiscal policy refers to using either an increase in government purchases of goods and services or a decrease...
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