1、 1This book is authored by John A. Torres who has been a student of mine in “Introduction to Macroeconomics”, Fall 2004. The reasons for this assignment are: Learning is a “Cumulative” procedure. The students learn a little bit every day, without noticing that they are accumulating the knowledge. Ma
2、ny times, in my professional life, I have been approached by my students who frequently claim: “I have not learned anything in this course!” Putting the accumulated knowledge in writing brings to the students attention the enormous amount of knowledge that they have gradually acquired. It is a matte
3、r of the fact that in our country, the students are not learning the basic tools for their success; especially at high school level. They learn “Everything” except how to read, how to listen, how to write, and how to calculate! That is why I have chosen these skills as my curriculas core competencie
4、s. Authoring this book improves the first three above mentioned communication skill of my students. To further improve the communication abilities of my students, they are taught how to build a web-site and enrich it with their accumulated knowledge. You may visit Johns web-site at: . This book, un
5、doubtedly, is not a perfect book in economics. It is, hopefully, the “First Try” in a series of books published by John A. Torres in the future. It is a pleasure for me to hear about the future published scientific works of John A. Torres. This will give me the satisfaction to claim that I was the o
6、ne who taught him/her how to improve his/her communication skills at first place. Bijan, Moeinian, Docteur es sciences economiques. 2Is America Number One? The standards of living in United States and other countries in the world are different. There are countries like India were poverty is really h
7、igh and you can see a lot of people begging for at least a piece of bread. Hong Kong is a country that basically started from nothing. There is more poor people in Europe and other countries than in Hong Kong. It is really easy to open a business in Hong Kong because you only need few papers and you
8、 can do it even in one day or a week. In the other hand, when you go try to open a business in India it will take you months and even years and that why people discourage and give up really good ideas. The process is really long even though it is that way to ensure consumers safety. It is easier for
9、 Indians to develop and be professionals in other countries. This video also talks about how United States creates opportunities for many people. Immigrants can realize their dreams and be 3successful in America. America has an open society that led people be whatever they want to be. United States
10、tries to make things equal for everybody in this country. Poverty in America is nothing when you compare it to other countries. Some jobs are eliminated but there are more jobs created. Is America number one or not, Im not sure but I know that is a country that helps a lot of people become who they
11、want to be. 4Ten Principles of Economics Decision making is the essence of economics. Economics is the study of how society manages its resources. Ten Principles: 1. People Face Trade outs- people have to decide what to do. We have priorities and sometimes we have to trade things that we like for th
12、ings that we dont like. For example we have to stay home and study instead of going to a party with your friends. 2. The Cost of Something is what you Give Up to get it- in a college education you give up time and money to pay tuition and books and that is its cost. The cost is not only money it inc
13、ludes time and other factor s. 3. Rational People think at the Margin- balance things out to do the right thing. Rational people will act if the marginal benefit exceeds the marginal cost. 54. People Respond to Incentives- people respond more when they get something back. For example- discounts, tax
14、, etc. 5. Trade can Make Everybody Better Off- in this society people are not self-sufficient. People specialize in one thing and led other people do other things. Everybody benefits from the ability to trade with others. 6. Markets are usually a Good Way to Organize Economic Activity- in a market p
15、eople make changes in prices. Everyone interacts in a market economy and prices are the key instruments in the economy. 7. Government can Sometimes Improve Market Outcomes- markets are very powerful but they are not perfect, thats why the government has to get involve to prevent failures. Government
16、 steps in to help the customers and the economy. 8. A Countrys Standard of Living depends on its Ability to Produce Goods and Services- the standard of living between countries is dramatically different. Productivity is 6the key that explains the difference between rich and poor countries. Countries
17、 with no economic freedom tend to have a depressed productivity. 9. Price Rise When the Government Prints Too Much Money- 10. Society Faces a Short Run Tradeoff between Inflation and Unemployment 7Confronting Scarcity Economics involves decision making. Nations have to decide what to produce and how
18、 to produce it. The demand for wood and minerals is high. Many companies get their wood from rainforests. This great demand for wood is decreasing our rainforests. Most rainforests in South America have been cleared. When we destroy them we also destroy habits, animals and many other resources. We d
19、ont know what the future of the rainforests is going to be, but we need to take in mind the importance of this natural habit. Some countries can produce more of a certain product than others because they can usually do it at a lower opportunity cost that is called comparative advantage. If a country
20、 can make more of a product at a low cost they would have an advantage. Comparative advantage is good because it leads to international trade. Nations gain by trading with each other because they can buy the products they need 8at lower prices. We all beneficiate from this ability to trade products
21、and thats what creates a good economy. 9Supply and Demand Supply and Demand describes how we are affected by these factors. Most Americans take water for granted. Water cannot be substitute for anything. California faced one of the worst droughts during the 1970s. Before the 1970s water was very che
22、ap, but after the drought people were willing to buy water at any price. They had a great agricultural industry dependent on water. In the beginning Californians didnt know that it was going to be so bad. The water for irrigation was drastically cut back. Officials reallocated water and created meth
23、od to solve this problem. Some people were not concerned of this and they were wasting the water. The government took action to help with this problem. In the second year of the drought, each resident was cut out to 46 gallons of water a day. New water rates were imposed and people were penalized fo
24、r the misuse of water. Households were 10assigned a number of gallons to use and they could use it anyway they wanted. Marin residents reduced water consumption by 66%. They were willing to spend a lot of money in water, for something that they used to take for granted. New conservation method arise
25、 to relief this problem. Torrential rain marked down the end of the drought. People held down the use of water for a couple of months. If you have a shortage you get careful of how you use it, but when you have plenty it gets wasted. In simple words that explains the Law of Diminishing Marginal Util
26、ity. During 1970s America faced a shortage in oil. The OPEC raised the oil by four times. United States was highly depended on imported oil. It was our first oil crisis. OPEC had the oil, and America needed it. Oil suppliers put pressure on the government. Americans found and opportunity to drill th
27、eir own oil. Many independent oilmen returned to the business during this 11time. The government encourages research and exploration in this area. This shows how we react more to higher prices, and higher prices promise higher profits. When something is hot, people just have to get it. Designer jean
28、s were popular and people wanted to get them even if they were more expensive than regular jeans. Americans were buying them in doubled the price. Consumers though that the jeans were going to give them a better image. It was the first time that television was used powerfully to advertise and influe
29、nce the buyers. The Designer Jeans Company created a great demand for the product. By putting so many millions in advertising they entrepreneurs where taking a huge risk. It became very acceptable to wear jeans anywhere. It attracted the consumer because it was a new lifestyle and it influenced them
30、 to pay a premium price for the jeans. The market goes overdone. When everybody had one, people were not willing to pay the premium price anymore so the demand went down. 12Times change and taste changes making us spend different amounts of money in products. The supply and demand curve never states
31、 put. It changes as the demand and the supply of the products change. The price change the curve as is makes it increase or decrease. Everything that we buy or use is influenced by supply and demands. 13Measuring Economic Growth The Gross Domestic Product is the combination of items consumed. Supply
32、 and Demand- people influence supply by demanding product, and business create demand by supplying services and products. The nations households own resources. These resources are called factors of production (land, labor, capital, entrepreneurial ability). Business demand this factors of production
33、 in order to produce a good or service. Gross Domestic Products is a combination of Consumption Investment and Government Spending Net Exports. Consumption is consumers expending in Services and Goods. Investments represent a flow of spending from business to business. Government purchases about 20%
34、 of GDP. United States exports a lot of goods and services to other countries. The US also imports a lot of goods and services. The subtraction of imports from exports yields to net exports. Consumption, Investment, Government 14Spending and Net Exports add up to be the Gross Domestic Product. It is
35、 difficult to get a complete accurate GDP because not everybody reports all their income. The United States GDP indicates that we have the higher standards of living. Higher Productivity does not translate into higher standards of living because other factors can also affect it. When looking at the
36、GDP we should also look at the distribution of the GDP. Some countries like Sweden have a high GDP and their standards of living are good. GDP is only one measure of society standards of living. Real GDP still remains the best single indicator of Macroeconomics performance. 15Boom and Bust When peop
37、le dont have jobs they dont have money to spend making the economy go down. 1929 was the year of collusion between 19th century economic theory and 20th Century economic reality. John Manor Canes provide the basis for a new theory of the Business Cycle. The Economy was more resilient in the 19th Cen
38、tury. The Says law stated that by producing the commodity they create a demand for that product. The economy boomed during the war due to the need for weapons and materials. JB Say said that supply creates its own demand. Demand is a set of goods being offer in exchange for others. Depression would
39、always cure themselves. There will always be a market for goods and the labor that comes to produce them. Finally everything work outs for the best and the economy bounces back. As businessman and worker struggle during the postwar years prices continued to rise and the unemployment went back to 162
40、1%. The good times produce bad times and the bad times produces good times. Good times produce their own predictions and tensions. The bad times produces their own healing. The 1920s was known as the lost generation. The industrial revolution was growing at the same time. The economy was booming thr
41、ough out the decade. Huge profits were invested and the stock market was doing well. During this time everybody was convinced that the smartest man in America was the Secretary of Commerce Harvert Hoover. One day the prosperity stopped and the economy started declining. Chaos was in the mind of the
42、workers and all Americans. Hoover was blamed from the economy crash. 17Inflation We have all felt the effects of inflation. When prices go up a little we are not surprised but when they get out of hand then we notice it. The country grew and expanded during the 1950s. During the 1960s the economy be
43、gan to cool down. President John F. Kennedy proposed a massive tax cut; this was done to stimulate the economy. Kennedy didnt live to see his plan in action. Lyndon B. Johnson became president, and he pursed Kennedys proposal through Congress. It worked perfectly and it stimulated demand. The Govern
44、ment wasnt aware of how much the war on Vietnam was going to cost. It was an average of 1 billion per month. Johnson didnt want to raise taxes. Consumers and business kept spending. The demand exceeded the economies ability to supply. To solve this problem Johnson approved a one year 10% surtax but
45、it wasnt in time. Economist says that inflation occurs when people want to satisfy their need of goods 18and services but they are not enough, so the prices rise. The increasing demand for something raises the prices, and price tax decreases the demand. When inflation spreads rapidly many are unprot
46、ected. People in debt gain with inflation. When someone buys a house because the interest rate goes down and the value of the house increases. Senior citizens are greatly affected by inflation because most of them have a fix salary and they dont have extra money to cover a price increase. Seniors ha
47、ve the power to organize and make their voices heard. The working poor and they unemployed are hit hard by inflation because their money is limited. Poor people organize and vote less than any other people. Workers want higher salaries but that increases the prices of products and services. When inf
48、lation comes every group think that they are losing, but not everybody is losing. It is very hard to run an efficient productive economy when prices are rising. When the prices rise, the salaries tend to rise; this is spiral that keeps going that way. By restricting 19the money supply the inflation
49、should also restraint. The freeze of prices worked. Richard Nixon approved the price control for 90 days. The prices went up again after this period. When demand is high we cut back by rising taxes. We lower prices without having a real effect on GNP or employment. To lower inflation we have to plunged the economy into a recession. During the early 1970s the prices tend to rise right after full employment. Inflation cant be taken lightly, but we all need to learn how to live with inflation. 20Savings and Investments Almost everybody knows a lit
