Contents
Management Class for Learners is a free self-directed study support resource along with Chat Lines, Discussion Forums and Wikis and Learner Support units, designed for business, management, IT, English Language, and Research students and instructors intending to enhance their managerial or professional knowledge, understanding, skills and competence by open learning.
Apart from the web-based learning material, such as our adapted versions Wikipedia, on 'public domain' - used for a seamless integration of the modules to a Business or Management curriculum, we have also found other web sources and our own or the material created or 'acquired' from our colleagues.
Whilst we unable to accept any responsibility for the accuracy, views or opinions expressed in any of the third party material featured on our sites, please feel free to use it, and let us know if you do not find what you need or have any problems in accessing any of the relevant links on our pages.
In keeping with the ethos of the Internet, we respect the copyrights of the original owners/authors of the sites or material we have used, we also expect our users to respect our copyright and all the third party intellectual property rights when using any material found on Management Class or Finntrack sites.
For further details on all our web-based resources go here.
Brief Principles of Macroeconomics
Rationale
Macroeconomics is a sub-field of economics that examines the behaviour of the economy as a whole, once all of the individual economic decisions of companies and industries have been summed. Economy-wide phenomena considered by macroeconomics include Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels.
In contrast, microeconomics is the study of the economic behaviour and decision-making of individual consumers, firms, and industries.
Macroeconomics can be used to analyse how to influence government policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments.
Macroeconomics is sometimes used to refer to a general approach to economic reasoning, which includes long term strategies and rational expectations in aggregate behaviour
Learning Objectives and Outcomes
This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in IT and computing.
Knowledge
After completing the course, student will understand
Skills
After completing the course, student will be able to
Today's Videos
- Connect with us on http://www.youtube.com/finntrack
- Google's Playlists
Teaching and Learning Resources
Introduction
- Ten Principles of Economics.ppt (314 Kb)
- Thinking Like an Economist.ppt (481 Kb)
- Interdependence and the Gains from Trade.ppt (358 Kb)
Economics is the study of how to satisfy unlimited wants with limited resources. It is the social science that studies the production, distribution, and consumption of goods and services, and the theory and management of the scarce goods, resources, and services.
The word 'economics' is from the Greek for οἶκος (oikos: house) and νόμος (nomos: custom or law), hence "rules of the house(hold)."
A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choice, as affected by incentives and resources.
Areas of economics may be divided or classified in various ways, including:
- microeconomics and macroeconomics
- positive economics ("what is") and normative economics ("what ought to be")
- mainstream economics and heterodox economics
- fields and broader categories within economics.
One of the uses of economics is to explain how economies work and what the relations are between economic players in the larger society. Methods of economic analysis have been increasingly applied to fields that involve people (officials included) making choices in a social context, such as crime [1], education [2], the family, health, law, politics, religion [3], social institutions, and war [4].
|
 |
Supply and Demand: How Markets Work
Tutorials
Readings
The Supply and Demand model describes the interaction in the market for a certain good between producers and consumers, in relation to the price and sales of the good. It is the fundamental model of microeconomics, and is used to explain a variety of microeconomic scenarios, as well as as a building block for many other economic models and theories. It was originally described by Antoine Augustin Cournot, and was popularized by Alfred Marshall.
The model predicts that in a competitive free market, price will function to equalize the quantity demanded by consumers and the quantity supplied by producers, resulting in an economic equilibrium.
- "Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The Origins of Supply and Demand Geometry"
- Supply and Demand book by Hubert D. Henderson at Project Gutenberg.
- Price Theory and Applications by Steven E. Landsburg ISBN 0-538-88206-9
- An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776 [1]
- By what is the price of a commodity determined?, a brief statement of Karl Marx's rival account [2]
- The Economic Motivation of Open Source Software: Stakeholder Perspectives, Dirk Riehle, 2007 [3]
The Data of Macroeconomics
Tutorials
- Measuring a Nation's Income.ppt (337 Kb)
- Measuring the Cost of Living.ppt (152 Kb)
Readings
A Cost-of-Living Index measures the cost of maintaining a certain standard of living over time. Price indexes, such as the United States Consumer Price Index, use cost-of-living as their conceptual basis.
Such indexes are constructed to have a value of 100 in a given year (or period), the base year. Other values of the index are relative to the base year. An index value of 110 indicates that the cost of living is ten percent higher than in the base year. Thus, the index provides a unit-free measure of the cost of living. Cost-of-living indexes are also available that allow for substitution among items as relative prices change. Another kind of cost-of-living index compares the cost of living not across time but across regions, such as metropolitan areas. A value of 100 for the index would indicate which areas had a cost of living above or that level. A Konüs index is a type of cost-of-living index that uses an expenditure function such as one used in assessing expected compensating variation. The expected indirect utility is equated in both periods. This method can be used to introduce risk aversion into cost-of-living indexes. A cost-of-living index is a useful way to consider welfare changes caused by changes in factors exogenous to the individual household, such as inflation, and the monetary, fiscal, and trade policies of governments. One drawback is that difficulty measuring changes in the quality of goods.
|
 |
The Real Economy in the Long Run
Tutorials
- Production and Growth.ppt (174 Kb)
- Saving, Investment, and the Financial System.ppt(345 Kb)
- The Natural Rate of Unemployment.ppt (234 Kb)
Readings
In economics, Productivity is the amount of output created (in terms of goods produced or services rendered) per unit input used. For instance, labour productivity is typically measured as output per worker or output per labour-hour. With respect to land, the "yield" is equivalent to "land productivity". As Henry Hazlitt explains in Economics in One Lesson, increasing production reduces prices, and therefore goods become more widely available. Automobiles, for example, were initially hand made and only available to the wealthy. As productivity increased, and the price of automobiles fell, they became widely available to the general population.
- Measures of factor productivity
- Productivity studies
- Increases in productivity
- Labour productivity
- Marx on productivity
Economic Growth is the increase in value of the goods and services produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic product, or GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.
As economic growth is measured as the annual percent change of National Income it has all the advantages and drawbacks of that level variable. But people tend to attach a particular value to the annual percentage change, perhaps since it tells them what happens to their pay check.
- Green Accounting Bibliography.
- Historicalstatistics.org - Links to historical economic statistics for different countries and regions
- Beyond Classical and Keynesian Macroeconomic Policy is Paul Romer's plain-English explanation of Endogenous Growth Theory.
- Charleston Area Alliance
- Size of Government and Economic Growth
- World maps, including maps of relative economic growth
- CEPR Economics Seminar Series Two seminars on the importance of growth with economists Dean Baker and Mark Weisbrot
- Who's afraid of economic growth? Essay by Daniel Ben-Ami on the contemporary anxiety about economic growth.
- Angus Maddison's Historical Dataseries -Series for almost all countries on GDP, Population and GDP per capita from the year 0 up to 2003
- Groningen Growth and Development Centre, Total Economy Database
- Historical data - since 1954 - comparing the US GDP growth rate versus the US Fed Funds Rate
In common usage, Saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan.
In a broader sense, saving is typically used to refer to economizing, cutting costs, or to rescuing someone or something.
In terms of personal finance, saving refers to preserving money for future use - typically by putting it on deposit - this is distinct from investment where there is an element of risk.
Saving differs from savings in that the first refers to the act of putting aside money for future use, whereas the second refers to the money itself once saved.
For example: you may decide to start saving 10% of your income; because you aim for your savings to grow into an amount sufficient to buy a car.
Unemployment is the condition of not having a job, often referred to as being "out of work", or unemployed. Not having a job when a person needs one, makes it difficult if not impossible to meet financial obligations such as purchasing food to feed oneself and one's family, and paying one's bills; failure to make mortgage payments or to pay rent may lead to homelessness through foreclosure or eviction. Being unemployed, and the financial difficulties and loss of health insurance benefits that come with it, may cause malnutrition and illness, and are major sources of mental stress and loss of self-esteem which may lead to depression, which may have a further negative impact on health.
In economics, unemployment refers to the condition and extent of joblessness within an economy, and is measured in terms of the unemployment rate, which is the number of unemployed workers divided by the total civilian labour force.
The terms unemployment and unemployed are sometimes used to refer to other inputs to production that are not being fully used — for example, unemployed capital goods.
The history of unemployment is the history of industrialization. It was not considered an issue in rural areas, despite the "disguised unemployment" of rural labourers having little to do, especially in conditions of overpopulation
- Impact of unemployment on society
- Causes of unemployment
- Types of unemployment
- Measuring unemployment
- Aiding the unemployed
Money and Prices in the Long Run
Tutorials
Readings
In economic models, the long run time frame assumes no fixed factors of production. Firms can enter or leave the marketplace, and the cost (and availability) of land, labour, raw materials, and capital goods can be assumed to vary. In contrast, in the short-run time frame, certain factors are assumed to be fixed, because there is not sufficient time for them to change. This is related to the long run average cost (LRAC) curve, an important factor in microeconomic models.
Long run marginal cost (LRMC) refers to the cost of providing an additional unit of service or commodity under assumption that this requires investment in capacity expansion. LRMC pricing is appropriate for best resource allocation, but may lead to a mismatch between operating costs and revenues.
In macroeconomic models, the long run assumes full factor mobility between economic sectors, and often assumes full capital mobility between nations.
The concept of long run cost is used in cost-volume-profit analysis and product mix analysis.
A famous use of the phrase was by John Maynard Keynes, who said in dry humour, "In the long run, we are all dead."
A Monetary System secures the proper functioning of money by regulating economic agents, transaction types, and money supply.
Monetary systems are traditionally formed by the policy decisions of individual governments and administrated as a domestic economic issue.
The current trend, however, is to use international trade and investment to alter the policy and legislation of individual governments. The best recent example of this policy is the European Union's creation of the euro as a common currency for many of its individual states. Another example is China's intentional devaluation of the Renaming against other currencies. Modern currencies are not linked to physical commodities (silver or gold) and are not a contract to deliver a good or service. As such the value of a currency fluctuates based on politics, perception and emotion in addition to monetary policy.
Apart from monetary systems based on money, there do also exist systems based on "favours". One example of this is the LETS system. LETS, or Local Exchange Trading Systems, are local community trading groups where members exchange their goods and services with each other.
In mainstream economics, the word “Inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.
The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. Mainstream economist views can be broadly divided into two camps: the "monetarists" who believe that monetary effects dominate all others in setting the rate of inflation, and the "Keynesians" who believe that the interaction of money, interest and output dominate over other effects. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities.
Related terms include: deflation, a general falling level of prices; disinflation, the reduction of the rate of inflation; hyper-inflation, an out-of-control inflationary spiral; stagflation, a combination of inflation and poor economic growth; and reflation, which is an attempt to raise prices to counteract deflationary pressures.
 |
|
The Macroeconomics of Open Economies
Tutorials
- Open-Economy Macroeconomics: Basic Conceptsppt (253 Kb)
- A Macroeconomic Theory of the Open Economy.ppt (190 Kb)
Readings
An Open Economy is an economy in which people, including businesses, can trade in goods and services with other people and businesses in the international community at large. This contrasts with a closed economy in which international trade cannot take place. The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade. There are a number of advantages for citizens of a country with an open economy. One primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose from. As well consumers have an opportunity to invest their savings outside of the country. In an open economy, a country's spending in any given year need not to equal its output of goods and services. A country can spend more money than it produces by borrowing from abroad, or it can spend less than it produces and lend the difference to foreigners. See also
|
Short-Run Economic Fluctuations
Tutorials
- Aggregate Demand and Aggregate Supply.ppt (283 Kb)
- The Influence of Monetary and Fiscal Policy.ppt (333 Kb)
- The Short-Run tradeoff between inflation and Unemployment.ppt (254 Kb)
Readings
In macroeconomics, the long run is the conceptual time period in which there are no fixed factors of production as to changing the output level by changing the capital stock or by entering or leaving an industry. The long run contrasts with the short run, in which some factors are variable and others are fixed, constraining entry or exit from an industry. In macroeconomics, the long run is the period when the general price level, contractual wage rates, and expectations adjust fully to the state of the economy, in contrast to the short run when these may not fully adjust.[1]
In the long run, firms change production levels in response to (expected) economic profits or losses, and the land, labour, capital goods and entrepreneurship vary to reach associated long-run average cost. In the simplified case of plant capacity as the only fixed factor, a generic firm can make these changes in the long run:
- enter an industry in response to (expected) profits
- leave an industry in response to losses
- increase its plant in response to profits
- decrease its plant in response to losses.
Long-run average-cost curve with economies of scale to Q2
and diseconomies of scale thereafter.
The long run is associated with the long-run average cost (LRAC) curve in microeconomic models along which a firm would minimize its average cost (cost per unit) for each respective long-run quantity of output. Long-run marginal cost (LRMC) is the added cost of providing an additional unit of service or commodity from changing capacity level to reach the lowest cost associated with that extra output. LRMC equalling price is efficient as to resource allocation in the long run. The concept of long-run cost is also used in determining whether the long-run expected to induce the firm to remain in the industry or shut down production there. In long-run equilibrium of an industry in which perfect competition prevails, the LRMC = Long run average LRAC at the minimum LRAC and associated output. The shape of the long-run marginal and average costs curves is determined by economies of scale.
The long run is a planning and implementation stage.[2][3] Here a firm may decide that it needs to produce on a larger scale by building a new plant or adding a production line. The firm may decide that new technology should be incorporated into its production process. The firm thus considers all its long-run production options and selects the optimal combination of inputs and technology for its long-run purposes.[4] The optimal combination of inputs is the least-cost combination of inputs for desired level of output when all inputs are variable.[3] Once the decisions are made and implemented and production begins, the firm is operating in the short run with fixed and variable inputs.[3][5]
All production in real time occurs in the short run. The short run is the conceptual time period in which at least one factor of production is fixed in amount and others are variable in amount. Costs that are fixed, say from existing plant size, have no impact on a firm's short-run decisions, since only variable costs and revenues affect short-run profits. Such fixed costs raise the associated short-run average cost of an output level over the long-run average cost if the amount of the fixed factor is better suited for a different output level. In the short run, a firm can raise output by increasing the amount of the variable factor(s), say labour through overtime.
A generic firm already producing in an industry can make three changes in the short run as a response to reach a posited equilibrium:
- increase production
- decrease production
- shut down.
In the short run, a profit-maximizing firm will:
- increase production if marginal cost is less than marginal revenue (added revenue per additional unit of output;
- decrease production if marginal cost is greater than marginal revenue;
- continue producing if average variable cost is less than price per unit, even if average total cost is greater than price;
- shut down if average variable cost is greater than price at each level of output.
The transition from the short run to the long run may be done by considering some short-run equilibrium that is also a long-run equilibrium as to supply and demand, then comparing that state against a new short-run and long-run equilibrium state from a change that disturbs equilibrium, say in the sales-tax rate, tracing out the short-run adjustment first, then the long-run adjustment. Each is an example of comparative statics. Alfred Marshall (1890) pioneered in comparative-static period analysis.[6] He distinguished between the temporary or market period (with output fixed), the short period, and the long period. "Classic" contemporary graphical and formal treatments include those of Jacob Viner (1931),[7] John Hicks (1939),[8] and Paul Samuelson (1947).[9]
The law of diminishing marginal returns to a variable factor applies to the short run.[10] It posits an effect of decreased added or marginal product of from variable factors, which increases the supply price of added output.[11] The law is related to a positive slope of the short-run marginal-cost curve.[12]
The usage of 'long run' and 'short run' in macroeconomics differs somewhat from the above microeconomic usage. J.M. Keynes (1936) emphasized fundamental factors of a market economy that might result in prolonged periods away from full-employment.[13] In later macro usage, the long run is the period in which the price level for the economy is completely flexible as to shifts in aggregate demand and aggregate supply. In addition there is full mobility of labour and capital between sectors of the economy and full capital mobility between nations. In the short run none of these conditions need fully hold. The price is sticky or fixed as to changes in aggregate demand or supply, capital is not fully mobile between sectors, and capital is not fully mobile to interest rate differences among countries & fixed exchange rates.[14]
A famous critique of neglecting short-run analysis was by John Maynard Keynes, who wrote that "In the long run, we are all dead," referring to the long-run proposition of the quantity theory of, for example, a doubling of the money supply doubling the price level.[15]
In economics, Aggregate Supply is the total supply of goods and services by a national economy during a specific time period. There are at least two different versions of this concept in
1. Sometimes the "Z curve" in the "Keynesian cross" diagram is referred to as "aggregate supply." This curve often represents the total amount of production that corresponds to the total amount of income in a country during a specific time period. Because the sum of all income received corresponds to the sum of all production, this is drawn as a 45 degree line. In this diagram, the desired total spending line crosses this Z curve, determining the equilibrium level of production, income, and spending.
2. In neo-Keynesian theory seen in many textbooks, an "aggregate supply and demand" diagram is drawn that looks like a typical Marshallian supply and demand diagram. The aggregate supply (AS) curve is usually drawn as upward-sloping in the short run, since the quantity of aggregate production supplied (Qs) rises as the average price level (P) rises.
There are two main reasons why Qs might rise as P rises, i.e., why the AS curve is upward sloping:
A. In neoclassical-influenced textbooks, it is necessary to raise prices to motivate profit-seeking firms to increase output. This is because of diminishing returns and thus rising marginal costs that arise because one or more of the inputs or factors of production does not change in the short run and is assumed to be fully employed at all times. Usually this is fixed capital equipment. The AS curve is drawn given some nominal variable, such as the nominal wage rate.
In the short run, the nominal wage rate is taken as fixed. Thus, rising P implies higher profits that justify expansion of output. In the neoclassical long run, on the other hand, the nominal wage rate varies with economic conditions. (High unemployment leads to falling nominal wages -- and vice-versa.) This is used to justify a vertical aggregate supply curve in the long run.
B. An alternative model starts with the notion that any economy involves a large number of heterogeneous types of inputs, including both fixed capital equipment and labour Both main types of inputs can be unemployed. The upward-sloping AS curve arises because (1) some nominal input prices are fixed in the short run (as in the neoclassical theory) and (2) as output rises, more and more production processes encounter bottlenecks.
At low levels of demand, there are large numbers of production processes that do not use their fixed capital equipment fully. Thus, production can be increased without much in the way of diminishing returns and the average price level need not rise much (if at all) to justify increased production. The AS curve is flat.
On the other hand, when demand is high, few production processes have unemployed fixed inputs. Thus, bottlenecks are general. Any increase in demand and production induces increases in prices. Thus, the AS curve is steep or vertical.
This implies an AS curve which has the shape of a rounded backwards "L".
AS is targeted by government "supply side policies" which are meant to increase productivity efficiency and national output. For example, Education and Training, Research and Development, Breaking Trade Union Powers, Benefits Reform, Welfare Reform, Labour Market Reform.
See also
Macroeconomic Policy Instruments fall within the realm of Macroeconomics policy. The latter can be divided into two subsets: a) Monetary policy and b) Fiscal policy. Monetary policy is conducted by the Federal Reserve or the central bank of a country or supranational region (Euro zone). Fiscal policy is conducted by the Executive and Legislative Branches of the Government and deals with managing a nation’s Budget.
Final Thoughts
Tutorials
Readings
Objectives of Government Macroeconomic Policy
1. Full employment, or low unemployment
2.
Price stability
3. High (but sustainable) economic growth
4. Balance of Payments in equilibrium
Recommended Text
 |
Brief
Principles of Macroeconomics N.
Gregory Mankiw Check
the availability and buy your books from our Bookshop. |
Resources
Biz/ed:
Economics Materials
Large variety of learning resources and links, including
case studies, analyses of common economics arguments,
and an online bank of questions that students could use
as tutorials
EcEdWeb:
Economic Education Web
Portal for teaching resources, both university and K-12,
provided by the Center for Economic Education at the
University of Nebraska at Omaha
Economic
Education Station
Centre College's online resources for teaching economics
Economics
Centre of the Learning and Teaching Support
U.K.-based resources for university instructors of economics
Just
Business
Web resources on economic ethics for students and teachers
National
Center for Research in Economic Education
U.S.-based research portal. Includes searchable Research
in Economics Education Database (REED)
http://www.cba.unl.edu/outreach/econed/reed/search.asp
Tutor2u
U.K.-based resource that provides explanations of economics
terms
E - Macroeconomics and Monetary Economics
Global Macroeconomic and Financial Policy Site
Macroeconomics resources for students
New Open Economy Macroeconomics Homepage
Teaching Macroeconomics: Brad DeLong's Online Resources
The International Finance and Macroeconomics Program