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Macroeconomics 2.docx

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Department
Economics
Course
ECON 201
Professor
Dr.Neri
Semester
Winter

Description
Macroeconomics Chapter 2  Assumptions: simplify the complex world and make it easier to understand.  Different assumption for short run and long run.  Models: omit details to show what is really important. (simplify)  Circular-flow diagram: a visual model of the economy that shows how dollars flow through markets among households and firms.  Two decision makers:  Firms • Produce goods and services using inputs of labor, land and capital (FOPs)  Households • Own FOP’s and consume goods and services that firms produce.  Interact in market for goods and services  Households are buyers and firms are sellers  And market for FOP’s  Households are sellers and firms are buyers • Households provide inputs that firms need to produce goods and services.  Production Possibilities Frontier: a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.  Ef
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