chapter 1 (15): Introducing macroeconomics:
macroenonomics: involves the study of the whole economy at the aggregate level.
cateris parabus: means holding all other factors in the economy constant when examining one part of the economy. It is an important assumption in microeconomics but generally not for macro.
At the macroenonomic level economists devide into free market and Keynesian economists.
Free market econmists generally believe that the economy is self adjusting, with the market mechanism automatically bringing about full employment and economic growth- providing that at the microeconomic level, markets are allowed to function freely and are sufficently competitive. Decentralised decision making and the markets invisible hand can achieve optimal resource allocation in a competitive market economy without the need for government intervention into the economy.
Keynesian economists: Keynes believed that in a modern economy people may save too much and spend too little of their incomes. This means unemployment persists in the economy as long as people continue to spend too little
fiscal policy: is the use of governement spending and taxation to achieve the government's policy objectives.
monetary policy: is the use of interest rates to achieve the government's policy objectives.
monetarism: is the belief that as inflation is assumed to be caused byt excessive growth of the money supply, monetary policy should be used the control its growth