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Lecture 1

ECON1002 Lecture Notes - Lecture 1: Business Cycle, Deflation, Income Approach

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Wednesday, 2 August 2017
ECON1002 - Lecture 1 (Week 1)
Contact Information!
-Unit coordinator:!
Mark Melatos -!
Consultation hours - Mondays 3pm - 5pm (Room 335)!
Fundamentals of Economics!
-Why do people, firms and governments behave they way they do - economics
allows you to study the role of incentives. !
-How does this behaviour impact on the economy, individuals and the environment
- this is the constraint of scarce resources. !
-Microeconomics studies decision-making by individual economics agents:!
Why does it make sense for one firm to merge with or take-over another?!
How does a firm decide whether or not to enter a new market?!
Should Australia join free trade agreements?!
What is the likely impact of higher petrol prices on an individual’s car usage?!
-Macroeconomics studies the aggregate impact of individual decisions:!
What determines interest rates and exchange rates?!
How are these two linked?!
What determines a country’s rate of economic growth and aggregate
unemployment rate?!
How will global warming (and government policy responses to this use) impact
on the Australian economy? !
Microeconomics provides a foundation for macroeconomics.!
Macroeconomics is becoming more important to study right now as there are
may major issues coming to a head which will shape port lives for the decades
to come:!
-Financial crises such as Brexit, Europe and the Global Financial Crisis. !
-Environmental challenges such as global warming. !
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Wednesday, 2 August 2017
-Global free trade and the threat it faces. !
-The rise of new world powers such as China or India. !
-The impact of new technology. !
-Population pressures and migration. !
-Economists are often used in todays world to make predictions that frequently
turn out to be wrong - this is often because unforeseen factors emerge which no
one could have predicted. !
-Economists are like a doctor and the patient is the economy in this example:!
Economists have to ask the right questions to identity the issues. !
They also have to look for symptoms by analysing the data. !
Diagnose the problem by applying the theory. !
Then the economist has to prescribe the cure by designing policy response.!
Suggest a prophylactic strategy for the future to stop the problem reoccurring
by signing a reform strategy.!
-There is no right ideology and often economic arguments get caught up in
political arguments. !
-There are no free lunches - people who own houses and see their value go up
each year do so at the detriment to others in the system. !
-An economic model is no substitute for common sense. !
-Alan Greenspan: “I made a mistake in presuming that the self-interest of
organisations.. were such that they were best capable of protecting their own
-Macroeconomics is a useful tool for predictions and to understand how the
economy works to identify a suitable policy response. !
-Marginal versus crucial issues and trends matter:!
Global Financial Crisis and the mark-to-market accounting was where banks
and insurance companies held assets that were falling in value and needed to
be sold; these institutions could not sell these assets so banks etc. had to write
down the value of the assets and there was a huge political argument about the
accuracy of mark-to-market accounting and whether it was good to force
banks to write assets down to a value of 0. !
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