Economics

1. Economics F. Girod – PLA 12 (2012)

2. Introduction But the honest truth is that what drives me as an economist is that economics is fun. Paul Krugman Princeton, USA

3. Expectations Whatcanyouexpectfromme? • Decentquality of material & mylectures • Subject-orientatedsupport & assistance • Fair treatment • Information concerninglectures on time via „theblogandtwitter“

4. FOLLOW ME criticalstudents.wordpress.com @criticalstud

5. Expectations (2) What I expectfromyou: • Work in advance & takepart in discussions • Respectyourfellows • Fair treatment • Letmeknowwhatbothersyou! • Feedback at the end of eachlesson

6. The last 2 minutes What I ve learned today I didn’t learn today Please note down the last 2 minutes what you got or what the muddiest point was

7. Personal hints • Use the slides for notes • Don’t write down everything – better listen & discuss • Read a serious newspaper! • Discuss the content with fellows • Start learning early enough!

8. Why Economics

9. Structure of the course

10. Learning goals At the end of this course you should be able …to apply the principles from economics on most problems / situations you will phase in your work life e.g. judging the effect of a price policy on your business to critically analyse (&judge personally for yourself) discussions about economic topics in business and politics

11. Introduction What we will be talking about Expectations

12. Fun with economics

13. Introduction Objectives of this course • What is economics about? • Why should we know something about economics? • Get to know the basic principles, theories and tools used by economists

14. Introduction • Each one-point (1% point) increase in the unemployment rate is associated with (in the U.S.): • 920 more suicides • 650 more murder • 4000 more people admitted to state mental institutions • 3300 more people sent to state prisons • 37,000 more deaths • increases in domestic violence & homelessness Why learn macroeconomics?

15. Introduction The questionseconomistsask • Why does the cost of living keep rising? • Why are millions of people unemployed, even when the economy is booming? • What causes recessions? Can the government do anything to combat recessions? Should it?

16. Introduction

17. Introduction F. Girod – PLA 12 (2010)

18. Introduction …and the end of the semester… …you will know about… …basic theories, principles & tools of economics as well as institutions… …to understand and manage external developments in your future career…

19. Introduction Feel free to use any appropriate books! Ask me whether a book is suitable or not

20. Literature Basic readings & supporting your learning Mankiw, N. G. (2010), Macroeconomics, 7thEdition Krugman, P., Wells, R., Graddy, K. (2009), Economics, 2nd Edition

21. More than that... Use full links and sources: • Basic theory: Check on iTunes  iTunes University, espacially Jeff Caldwells „Principles of Macroeconomics“ • Current topics: The Economist • Blogs: the New York Times features blogs from P. Krugman and Levitt & Dubner  very much entertaining, critical and up-to-date

22. The BIG picture

23. Interesting Questions: What is macro- or/and microeconomics? What is money and why is it important to define? What is GDP and how do we measure it? The meaning of inflation & deflation and why price stability is preferred What is special about the macroeconomics of an open economy, an economy that trades goods, services and assets with other countries

24. Macroeconomics vs. Microeconomics • Microeconomics • focuses on how decisions are made by individuals and firms and the consequences of those decisions. • Example: How much it would cost for a university or college to offer a new course? (including the cost of the instructor’s salary, the classroom facilities, the class materials, and so on). • Having determined the cost, the school can then decide whether to offer the course.

25. Macroeconomics vs. Microeconomics • Macroeconomics • examines the aggregate behavior of the economy ─ how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole. • Example: Overall level of prices in the economy (how high or how low they are relative to prices last year) rather than the price of a particular good or service.

26. Economics & principles (1) Economic Principles: referring to the idea of "principles of economic life". Mankiw's list of 10 principles (below) is a good example of this notion. These are principles of how the economy works (or should work), hence, they refer to the economy or economic actors.

27. Economics & principles (2) Principles of Economics: referring to the basic methods &concepts economists use when doing economics, hence to economic analysis. In this view the term "economics" refers to the discipline, not to the economy. This type of principles is often interwoven with the first type in the textbooks. Lists of principles of doing economics are harder to find.

28. 10 Economic principles (1) How People Make Decisions • People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another. • The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions. • Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost. • People Respond to Incentives. Behavior changes when costs or benefits change.

29. 10 Economic principles (2) How the Economy Works as A Whole • Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services. • Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government. • Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

30. 10 Economic principles (3) How People Interact • A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income. • Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services. • Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.

31. 10 Principles explained

32. Anyquestionsleft ?