ECON 2020U Chapter 2: Principles of Macro [Mankiw, Kneebone, McKenzie] - Chapter 2 Notes
Document Summary
Circular flow diagram - a visual model of the economy that shows how dollars flo w through markets among households and firms. Production possibilities frontier - a graph that shows the combinations of outpu t that the economy can possibly produce given the available factors of productio n and the available production technology. Positive statements - claims that attempt to describe the world as it is. Normative statements - claims that attempt to prescribe how the world should be. Economic models work to simplify reality in a way we can understand it. If an economic model were to try to emulate actual reality, it would be impossible to compute one cause and affect system. Since assumptions must be made to simplify the economic models, it must be understood that the models may not execute exactly in the real world. Generally, statistical models are as accurate as models will ever be.
